Phenix Capital Group: 158 private debt impact funds focused on EM targeting SDG1

Phenix Capital Group: 158 private debt impact funds focused on EM targeting SDG1

July 3, 2023

Emerging Markets ESG
Emerging Markets (01) EM Opkomende landen

Private debt, also known as private credit, are loans made to companies that are not provided by banks or public markets. Phenix Capital Group’s latest report brings data on private debt funds, revealing that there are 158 private debt impact funds focused on the emerging markets targeting SDG1: No Poverty - one way to achieve financial inclusion.

These private market investments can range in size and scale and be implemented in different forms, such as direct lending, mezzanine finance, and microcredit. Regular cash flow, lower volatility (compared to equities) and a relatively stable returns profile are among the strategy’s advantages.

The structures are popular with Small and Medium Enterprises (SMEs) and MSMEs that are unable to access debt from traditional banks or financing institutions. Such small companies rely on services offered by microfinance institutions or trade finance funds for loans and cash flow.

For this reason, private debt funds have historically targeted emerging markets, which at 67%, continues to be the case in this report. Private debt is an important vehicle to help to drive private institutional capital into these regions and popular because as a strategy it offers better terms than traditional bank loans.

Report Highlights

  • 219% growth in the number of private debt funds since 2014
  • 67% allocate to emerging markets
  • Private debt funds make up 14.9% of the total number of funds in the database
  • Global and developed market private debt funds have raised on average 97% more in assets than emerging market funds
  • 19 private debt impact fund launches in the pipeline

Interview

Michael Oliver Weinberg, Adjunct Professor of Finance and Economics at Columbia Business School, also a published author and an AI expert, gave us an interview on private debt impact strategies:

'In our view, financial first is far superior to impact first and impact only.  We wrote an article for Institutional Investor called ‘What Does ESG Need to Work?’ where we espoused what we called ‘Optimal ESG’, which one could also describe as Financial First-Impact investing', he explains.

The report also brings an article on the Pension Fund Detailhandel, which allocates to private debt impact managers. In 2020, the €28 billion Pensioenfonds Detailhandel, which has 1.3 million pension participants, decided to allocate roughly 1% of its portfolio to direct impact. Last year, it invested €300 million with three private debt managers: Symbiotics, Tikehau Capital, and Polestar Capital.

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