Catalytic capital and blended finance

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Investment Fund Manager role

Benefits to investment fund managers

Interest in blended finance from global foundations, HNWI’s and family offices, development finance institutions, and corporate foundations.

Infrastructure’s risk/reward/maturity profile is well suited for many types of institutional investors including sovereign wealth funds, insurance companies, and pension funds.

Investment Fund Manager case studies

Investment Fund Manager case studies

Investment Fund Manager

Fund

Link

Notes

Deutsche Bank

Africa Agriculture and Trade Investment Fund (AATIF)

https://www.db.com/cr/en/concrete-Africa-Agriculture-Trade-and-Investment-Fund.htm

Deutsche Bank manages the fund and is a catalytic shareholder

Deutsche Bank

Deutsche Bank Global Commercial Microfinance Consortium 1

https://www.convergence.finance/resource/56vSl935m8kcUuK0o6c0SW/view

Deutsche Bank

Eye Fund 1

https://www.db.com/usa/docs/Eye_Fund_I_Profile(1).pdf

SJF Ventures

Sustainable Jobs Fund

https://www.macfound.org/media/files/C3_Case_Studies_-_print_read.pdf

Catalytic Capital Investment: $1 million PRI* from MacArthur Foundation; other first-fund investors include Bank of America, Citibank, Deutsche Bank, First Union (now Wells Fargo), MetLife, and MBNA America Bank.

responsAbility Investments AG

Energy Access Debt Fund

https://thegiin.org/case-study/energy-access-debt-fund

NCB Capital Impact

FreshWorks Fund

https://thegiin.org/california-freshworks-fund-term-debt-facility

Both JP Morgan and JP Morgan Foundation participated

Ninety One

Emerging Africa Infrastructure Fund

https://www.eaif.com/who-we-are/funding/

There are no rows in this table

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A recent example of a commercial bank’s increasing involvement in development finance is the

$100 billion DFI launched by JP Morgan Chase in January 2020⁠

, to expand its development-oriented financing activities in emerging markets and galvanize private capital towards the SDGs. Another example is

HSBC’s Finance to Accelerate the Sustainable Transition-Infrastructure (Fast-Infra) Initiative⁠

Top private investors in blended finance transactions

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Screen Shot 2021-01-11 at 10.08.51 AM.png

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Top private investors in blended finance transactions, according to

Convergence⁠

Mandate and Appetite for Investment Assets by Investor Segment

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Screen Shot 2021-01-11 at 10.26.18 AM.png

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Other investment mechanisms

Social impact bonds

Selection criteria for screening potential partners

Reputation in the market

Track record of success

Implementation capacity

Alignment of mission with development impact goals

Steps that prospective investment managers can take

Read Global Impact Investing Network’s (GIIN)

Resource for Structuring Blended Finance Vehicles⁠

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Read about

Deutsche Bank pioneering a microfinance fund for institutional investors⁠

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Read

Convergence’s State of Blended Finance 2020 report⁠

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Read

Convergence’s How to Mobilize the Private Sector⁠

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Join

Convergence.Finance⁠

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Join GIIN’s

Blended Finance working group⁠

(members include UBP, SBC, Rothschild, RBC Global Asset Management, BMO Global Asset Management, AXA Investment Management, Bain Capital, and ABN AMRO)

Join the

Sustainable Development Investment Partnership⁠

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Recommendations for scaling blended finance

Focus on portfolio approaches rather than stand-alone projects to mobilize investors at scale. Portfolio approaches are preferred for three key reasons:

Only a small number of stand-alone projects are a suitable ticket size for private investors. Aggregating multiple projects can achieve the required critical mass.

Diversification across projects reduces risk and risk-return variance for investors. Indicatively, the Big 3 rating agencies’ methodologies allow for a two-notch upgrade for diversification across multiple borrowers in Non-Investment Grade Countries – that is, a portfolio of “B” projects can be enhanced to “BB-,” simply through diversification. In countries with very high country risk (e.g. Low-Income Countries), diversification across multiple countries is highly beneficial.

Bundling transactions accelerates taking transactions to market and lowers transaction costs as compared to individual projects.

In a joint paper published in April 2020 by Convergence and UK DFID entitled “

How to Mobilize Private Investment at Scale in Blended Finance⁠

,” we attribute the strong capacity of commercial banks to participate in blended transactions as arrangers and distributors to their ability to leverage expertise which deal originators, institutional investors, and catalytic capital providers can connect. B2T looks to structure impact-agnostic commercial capital and impact-driven concessional capital into replicable institutional-caliber blended finance investment products that solve the climate emergency and other critical development goals. from different divisions (e.g., debt capital markets, asset management, research) and broader global networks and subsidiaries. For example, financial institutions with established networks in developing countries are more familiar with the processes for underwriting and sourcing opportunities in those contexts and are therefore better positioned than their counterparts whose networks remain in developed markets. A recent example of a commercial bank’s increasing involvement in development finance is the

$100 billion DFI launched by JP Morgan Chase in January 2020⁠

, to expand its development-oriented financing activities in emerging markets and galvanize private capital towards the SDGs.

Additional relevant case studies

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Generation Investment Management⁠

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Generate Capital⁠

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