This year has seen emerging markets draw greater volumes of capital for private assets. The majority of this has been for climate, although social impact themes have also enjoyed their share of the growing impact pie.
For classic emerging markets themes – improving access to essential infrastructure, services and resources – fundraising has been ongoing. Meridiam‘s second Africa infrastructure fund, for example, targeting €750 million, has remained in market since January 2021. Schroders’ BlueOrchard, which launched private equity and private debt EM impact funds in 2022, has not announced any fund launches this year. Leapfrog remains in market with Emerging Consumer IV, which launched in 2022 with a $1 billion target, while Actis has been busy deploying its $4.7 billion fifth Energy fund, which closed in September 2021.
Other EM-focused impact GPs have braved the market despite the tighter fundraising conditions. Adenia Partners, for example, is nearing the $400 million target for the fifth vehicle in its flagship EM strategy; Fund IV closed at €230 million in 2017. This year also saw WaterEquity launch and close its fourth fund at $150 million – more than doubling the water security-focused firm’s AUM. In private debt, Blue Earth Capital’s second fund closed slightly above target at $108 million after three years in market. Clearly, the classic themes of emerging markets impact – improving access to essential infrastructure, services and resources – remain resilient.
But these fundraises pale in comparison to the tidal wave of climate-themed EM strategies brought to market this year. Impact fund managers such as Brookfield, TPG and BlackRock launched dedicated EM climate funds at COP28 with catalytic anchor commitments from the UAE’s $30 billion climate fund, Alterra. Earlier this year, Leapfrog launched a climate strategy with a $600 million target. And Investcorp’s first impact fund, Climate Solutions Partners, was also launched at COP28 and focuses on the Global South.
The investor base is evolving, too. EM strategies have long been funded by investors that have higher risk appetites: development finance and government-funded organisations, foundations, endowments, family offices and corporates. Indeed, the largest investor allocations to EM climate have been from government-funded entities such as the UAE’s Alterra, Singapore’s Temasek and Bahrain’s Mumtalakat.
But there are signs that the latest climate funds will attract capital from large institutions that cannot accept a returns/impact trade-off. TPG’s Global South Initiative has a catalytic tranche (where Alterra’s commitment sits) to attract other institutions. Similarly, ResponsAbility has launched a €500 million-target climate debt fund with a catalytic tranche; the firm aims to raise €300 million from private institutions and is “close to finalising” a $100 million commitment from an institutional investor. Ninety One is planning an EM transition debt strategy developed with the UK’s Wiltshire Pension Fund.