Fund Solutions

Multi-stakeholder SDG Fund Offers Blended Finance “Blueprint”

US$1.1 billion loan fund was conceived in recognition that public capital alone is “insufficient” to fill US$3.9 trillion funding gap in emerging markets.

A new fund from asset manager Allianz Global Investors (GI), Dutch development bank FMO and US impact investor the MacArthur Foundation aims to offer a “blueprint” for multi-stakeholder collaboration vital for plugging the UN Sustainable Development Goals (SDG) funding gap.  

“By filling critical funding gaps and fuelling economic, environmental and social benefits for tens of thousands of small businesses, families and communities, the fund will demonstrate the power of catalytic capital to unlock investment and impact that would not otherwise be possible,” said Debra Schwartz, Managing Director of Impact Investments at the John D and Catherine T MacArthur Foundation. 

The SDG Loan Fund has successfully mobilised US$1.1 billion in private capital using a blended finance structure, enabling institutional investors to co-invest in a portfolio of loan participations that support financial institutions and intermediaries.  

These loans will serve small- and medium-sized businesses in low- and moderate-income countries across emerging and frontier markets in three target sectors: energy, financial institutions, and agribusiness. 

“The strength of each [fund] partner plays a significant role in this endeavour,” said Nadia Nikolova, Lead Portfolio Manager at AllianzGI Development Finance.  

Allianz GI is responsible for managing the fund, FMO Investment Management (IM), a wholly owned subsidiary of FMO, is tasked with originating and managing the loan portfolio, while the MacArthur Foundation has committed a US$25 million guarantee for credit enhancement.  

Further, the fund’s large-scale and multi-sector reach are enabled by a first loss investment from FMO, coupled with MacArthur’s guarantee.  

The fund’s capital is provided by institutional investors, including Allianz, FMO and Swedish financial services group Skandia. 

“Both FMO IM and AllianzGI hold fiduciary obligations towards the billion-dollar capital,” Nikolova told onlookers at a press briefing.  

All three partners were “crucial” in the success of the fund, she noted, adding that the MacArthur Foundation’s unfunded guarantees helped to unlock FMO’s investment.  

“The billion-dollar capital wouldn’t have been possible without FMO’s investments and without Allianz GI’s providing the necessary plumbing the fund wouldn’t have been realised.” 

According to Nikolova, the fund showcases capital efficiency, raising US$9 of commercial capital for every dollar FMO commits and US$14 for every dollar from the MacArthur Foundation. 

Further, the fund extends beyond climate, investing in financial inclusion and agriculture, she added. 

Funding gap 

In 2015, the UN defined the SDGs as a “blueprint for peace and prosperity”, setting a 2030 deadline to achieve the 17 goals.  

The funding gap required to achieve these goals, however, amounts to US$3.9 trillion per annum, which increased by 50% following the pandemic.   

“Development capital, particularly public capital, is insufficient to fund this gap,” said Nikolova, noting that private capital is paramount. 

During COP26 and COP27, many private sector investors made significant pledges to invest specifically in emerging markets, where a large portion of the funding gap exists.  

The Marrakech Partnership action event on finance brought to the forefront a call for a global acceleration by business, investors, governments, and communities to collaboratively implement a common plan in line with 2030 goals: to turn financial pledges made at COP26 into projects, using COP27 to deliver local and resilient tools. 

“Despite these pledges, there has been little actual investment materialising,” said Nikolova, adding that last year saw one of the largest public fixed income outflows seen over the last few decades amid a macroeconomic backdrop of rising interest rates and inflation. 

“Blended finance has a crucial role to play in unlocking the private capital needed to spur development in emerging and frontier markets,” said Deborah Zurkow, Global Head of Investments at AllianzGI.  

“We firmly believe the SDG Loan Fund will act as a blueprint for successful multi-stakeholder collaboration, which we hope to see many more examples of in the future.” 

Nic Wessemius, Managing Director at FMO IM, which manages the development bank’s €10 billion (US$10.9 billion) balance sheet, said: “The capital pooled together through this blended finance structure is a demonstration that a shared vision to address the SDGs can result in finding solutions for very different types of investors.”

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