In 2024, the world was marked by ongoing conflict and shifting geopolitical landscapes, as well as unprecedented high temperatures – making it the hottest year on record at approximately 1.5°C above pre-industrial levels. Amidst these challenges, financing towards achieving the Sustainable Development Goals (SDGs) and Climate Objectives has stalled, particularly in emerging markets, where the need for funding the energy transition and SDG gaps has continued to grow. Developing countries now face a USD 4 trillion annual financing gap (United Nations Department of Economic and Social Affairs, 2024). Bridging this gap is beyond the capacity of the domestic and multilateral public sector, requiring stronger collaboration with the global private sector, including mobilising institutional capital for emerging markets. Institutional investors, such as pension funds and sovereign wealth funds, represent an immense pool of capital, exceeding USD 100 trillion. However, much of this wealth remains, for the most part, untapped and trapped in developed economies’ equity and bond markets (OECD, 2021).
To mobilise private institutional capital towards emerging markets and developing economies, and to narrow this much-needed long-term funding gap, ILX Management, with incubation support from the German, Dutch and UK governments, launched ILX Fund I in early 2022. This SDG-focused private debt fund co-invests with Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) on behalf of leading Dutch pension funds, including Europe’s largest pension fund ABP. It is founded on the belief that investors will benefit from the MDBs’ and DFIs’ reputation, emerging market resources, and investment track records. After a successful deployment, ILX launched ILX Fund II in 2024, with commitments from Danish pension fund investors, and converted ILX Fund I into a larger evergreen fund. By the end of 2024, ILX has invested in over 50 projects across 20 emerging market countries, with over USD 1 billion invested. This includes high-impact projects across core sectors such as infrastructure, renewable energy, agribusiness, manufacturing, and financial institutions.
ILX has deployed its capital by co-investing alongside the leading MDBs and DFIs, including IFC, EBRD, ADB, IDB-Invest and FMO. These development institutions are uniquely positioned to address SDG- and climate-related challenges at scale, with decades of experience in emerging markets investments and equipped with robust environmental and social safeguards. MDBs and DFIs are considered the most effective impact investors, as they are able to directly originate high-impact projects through well-structured and attractively yielding development finance loans. This enables them to mobilise significant private institutional capital through a large-scale private debt fund like ILX.
Investing in this new development finance private debt asset class, originated by MDBs and DFIs, offers institutional investors the opportunity to achieve significant impact without sacrificing financial performance. The MDB/DFI experience enables them to manage country and credit risk efficiently, ensuring high recovery rates and low default rates, as demonstrated by the Global Emerging Market Risk Database (GEMs), which includes the credit performance of all the MDBs and leading DFIs. Additionally, the emerging market development finance asset class provides institutional investors with attractive portfolio diversification. The historical credit performance has shown a low correlation with comparable asset classes such as EMD, High Yield, and Leveraged loans, suggesting that they do not follow the same risk patterns in financial market stress. At the same time, the emerging markets’ economic growth is expected to exceed that of developed economies and therefore will also present strong investment and impact opportunities for investors.
In the same manner, MDBs and DFIs’ exposure to the broader MENA region presents a wealth of opportunities for institutional investors seeking both financial returns and social and environmental impact. The region’s rapid economic growth and strategic location provide good investment opportunities, particularly in renewable energy, infrastructure, financial institutions, and agribusiness. ILX has already made attractive investments in the MENA region, supporting projects that drive economic growth, energy transition and sustainable development. This includes investments that have financed large-scale renewable energy projects of leading developers from the MENA region, such as ACWA Power and Masdar, in countries like Uzbekistan, Azerbaijan, Georgia, and Egypt. They are aimed at expanding solar and wind power generation and to reduce dependence on fossil fuels. Additionally, ILX has co-financed large-scale infrastructure projects in Egypt, enhancing key transportation networks to support trade and mobility. ILX has also contributed to SME finance and financial inclusion in the broader MENA region by supporting financial institutions in countries such as Egypt, Turkey, Georgia, and Uzbekistan. These investments, all co-financed with MDBs such as the IFC, EBRD, and ADB, demonstrate ILX’s commitment to fostering long-term, sustainable progress across MENA while generating attractive risk-adjusted returns for its institutional investors.
Sources:
United Nations Department of Economic and Social Affairs. (2024). Financing for Sustainable Development Report 2024. United Nations. https://desapublications.un.org/publications/financing-sustainable-development-report-2024
OECD, 2021. ‘Mobilising institutional investors for financing sustainable development in developing countries: Emerging evidence of opportunities and challenges’. https://one.oecd.org/document/DCD(2021)11/en/pdf