Stockholm (NordSIP) – For investors seeking to make the most impact towards a better future, the growth prospects provided by private market investments in emerging markets have traditionally been very appealing.
To this end, Amsterdam-based emerging market private debt asset manager ILX Management announced the successful first close of ILX Fund II thanks to the support of Danish institutional investors. On the same occasion, ILX also disclosed an increased allocation to ILX Fund I, which it now describes as “an evergreen structure”. These developments bring the total commitments to ILX’s the two funds to nearly US$1.7 billion.
“Making financing available to emerging markets to achieve UN Sustainable Development Goals (SDGs) is an important agenda for our stakeholders but difficult to achieve in practice. The ILX platform with co-investments alongside international development banks is a good way to achieve this while balancing emerging market risks and return,” Henrik Olejasz Larsen, CIO of the Danish Pension funds administered by Sampension, says.
ILX continues to seek additional commitments with other leading pension fund investors in the evergreen ILX Fund I and closed-end ILX Fund II, towards a US$3 billion combined target fund size. ILX recently received the UN-sponsored Principles for Responsible Investment Award for Innovation in Responsible Investment Strategy as well as the Special Award for Emerging Markets.
The ILX Fund II
ILX Fund II secured its first close with commitments from Danish pension fund manager Sampension, acting on behalf of four Danish pension funds, and from AkademikerPension. Fundamentally, ILX Fund II follows the same development finance private debt strategy as ILX Fund I, which allows investors to allocate capital across SDG and climate-targeted private debt investment opportunities in emerging markets, while also benefiting from the extensive expertise and resources of multilateral development banks (MDBs) and development finance institutions (DFIs).
“With this investment, we can check off both return and responsibility. A wide range of developing countries gain access to capital, while our members receive a stable return. This is truly a win-win for us,” Chief Investor Officer (CIO) of AkademikerPension, Anders Schelde, adds.
The ILX Fund I
ILX Fund I received additional commitments from Europe’s largest pension fund ABP, as well as bpfBOUW and Pensioenfonds Vervoer via their asset manager APG and Achmea Investment Management, to an aggregate total of US $1.5 billion for ILX Fund I, with US$1 billion coming from ABP as part of its €30 billion impact investment allocation.
To date, ILX Fund I has made 40 investments in 18 countries for around US$800 million, partnering in projects led by MDBs. According to the ILX Management, ILX Fund I will now transition from a closed-end fund to “a revolving, evergreen-type structure, providing investors continuity, scalability, flexibility, and efficiency.”
Financial Considerations
According to the asset manager, return benchmarking varies. “Our current investors have invested in the fund out of the emerging market debt bucket rather than the private debt bucket. The return benchmark we are therefore compared to is the benchmark used by the investor for this bucket. It varies per country and per investor. Returns are in line with the risk taken. Investments alongside MDBs are much less risky than other types of investments,” ILX Management tells NordSIP. The weighted average maturity of the portfolio is currently 7.5 years.
The fund is diversified across sectors with financials, renewable energy and infrastructure being the largest sectors. “The exposure to renewables is very attractive for investors as this is really hard to get such exposure via public indices,” ILX management explains. Geographically, the fund is invested in 17 countries including Central Europe (excluding developed markets but including countries such as Turkey), South America, Asia and Africa.
ILX Management only invests via MDBs and DFIs who are the entities responsible for sourcing the projects. In the past, ILX Management has partnered with the International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Inter-American Development Bank (IDB-Invest), Asian Development Bank (ADB) and the Dutch Entrepreneurial Development Bank (FMO).
ESG Integration
ESG integration follows a 3 step approach, starting with exclusions, ESG safeguarding and Impact reporting. ILX follows MDB-DFI Exclusions, its own “ILX level Activity-Based Exclusions” and “ILX Implementation of Investor specific Exclusions”. ESG safeguarding is conducted through a double materiality approach and at project level via the Environmental Single Access Point (ESAP) platform¹. Impact reporting focuses on SDG & SDI Mapping, climate assessments, Paris Alignment and consistency with ILX management’s Net Zero commitments.
ILX Management’s investments focus on four sustainability themes targeting the UN Sustainable Development Goals (SDGs).
According to ILX Management, the funds are available in the Nordic region and are regulated by the Alternative Investment Fund Managers Directive (AIFMD). Five Danish pension companies have invested so far and ILX is expecting continued participation from Nordic investors in the second close.
“We are extremely proud of the progress we have made with ILX Fund I and are excited about the potential of ILX Fund II. The increased commitments from our original Dutch pension fund partners, as well as the new commitments from Danish pension funds Sampension and AkademikerPension, are a testament to the confidence they have in the ILX strategy and the opportunity that the development finance asset class provides in making attractive high impact investments in the emerging markets,” explains Manfred Schepers, CEO of ILX Management.
¹ESAP is an EU-wide platform aimed at providing investors with seamless access to financial and sustainability-related information.
