Impact investing looks to put investment money to work on bringing about measurable change in the poorer societies of the emerging and frontier markets as well as improving the environment. With the successive shocks of Covid and now the Russian invasion of Ukraine rocking Europe and the West, Philipp Mueller, the CEO of BlueOrchard explains that the residents of countries in its markets can provide inspiration for our wealthier society. The key word: resilience.
Senior staffers from BlueOrchard, founded in 2001 as part of a United Nations initiative and since 2019 part of the Schroders Group, converged on Luxembourg this week for a board meeting at a time where in-person meetings are starting to happen again, to Mueller’s evident delight. The firm considers Luxembourg a key location, and maintains an office here housing its asset management company as well as staff focused on impact management.
Mueller describes BlueOrchard as a multi-asset manager really focussed on impact investing. “We want to invest where we can improve the lives of people or advance environmental causes and, at the same time, generate market rate returns for our investors.” He pointed out that financial inclusion as well as inclusion in general are a major focus for the firm, along with climate change adaptation and mitigation.
Close to their investment targets
The firm, which has to date invested over USD 9 billion in more than 90 countries, is a global operation with hubs in Lima, Peru, Nairobi, Kenya, Tbilisi, Georgia and Singapore, along with offices in Luxembourg, Geneva and headquarters in Zurich. Most of the company’s staff is located in emerging and frontier markets, he said.
“We’re not doing impact investments out of cosy offices in Luxembourg and Zurich,” he emphasised.
BlueOrchard invests in various asset classes. Private debt for the firm means investing with partner institutions in emerging/frontier markets who give out micro loans or loans to SMEs.
Impact bonds
It also has a public debt side, where it invests into “impact bonds”. He described these bonds as being issued by certain financial institutions whom BlueOrchard has supported over the years, with large microfinance portfolios and capital markets connections.
On the private equity side, it follows strategies to promote financial inclusion and climate change adaptation. This means it invest sin companies in the insurance sector who then issue climate insurance products to end beneficiaries.
The company is also in the process of deploying a sustainable assets practice which will invest in mid-size infrastructure transactions in emerging and frontier markets.
Bringing private capital to bear
Mueller explained that many of its offerings are blended finance structures, where a development finance institution or a multilateral organisation provides BlueOrchard with a guarantee or a “first loss” or a risk mitigant. With that, the firm can approach institutional investors and bring private capital to bear on these causes, he said.
Doing work in these emerging and frontier market areas has given Mueller a different perspective on the kind of crisis Europe is currently going through. For “the markets that we are in, crisis is nothing new. They constantly have other crises, health crises, earthquakes, malaria, regulator issues, political turmoil.” He describes these countries as being “remarkably resilient”.
At the same time, there is an enormous need for infrastructure. Mueller sees this as an opportunity to build “the infrastructure of tomorrow, now in a sustainable way”, without having to go through the need to move away from oil & gas after depending on it for so long.
A form of defence
Mueller mentioned a quote he’d found interesting positing renewables as a form of defence. He pointed to what he sees as an increase in demand for impact investing. “An enormous push is expected in the coming years for renewable energy, to make us less dependent on fossil fuels and energy sources which are under the control of questionable governments.”
Luxembourg is well-equipped to play a key role in impact investing, Mueller said. He described Luxembourg as having “a deep talent pool”, as well as people who are very interested in impact investing.
Commenting that “a lot of people I know in the financial service industry are lacking is a bit of a purpose,” he said that impact investing then offers them a way to “combine their know-how, their expertise, with a purpose, which is not just moving money from one side to another, but really achieving something with their money.”
He said Luxembourg is well-placed “to accelerate the transition to a more purposeful financial services industry.”
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