Emerging market private debt manager ILX is set to launch its second Sustainable Development Goals fund at US$2bn–$3bn, far larger than its US$1bn predecessor.
A pioneer in investing alongside multilateral development banks and development finance institutions, ILX is also aiming to take key sources of public capital – including the European Investment Bank and British International Investment – into loan syndications for the first time.
The ILX II fund closes in June and should feature European pension funds alongside Dutch compatriots of Amsterdam-headquartered ILX. ILX I was launched in 2022 by three of the country’s largest pension funds, with contributions of US$750m between ABP and bpfBOUW and US$300m from Pensioenfonds Vervoer.
The first fund has deployed US$650m in 30 projects in 15 countries across the developing world. This has involved participating in “B loan” syndications with the Asian Development Bank, European Bank for Reconstruction and Development, FMO, Inter-American Investment Corp and the International Finance Corp.
ILX I will have committed its remaining capital by summer, according to ILX chief executive Manfred Schepers.
The new fund will aim to invest US$500m–$750m annually in MDB/DFI B loans, which Schepers (who was EBRD chief financial officer for a decade to 2016) sees as potentially a US$100bn asset class that can address demands for public institutions to scale up their activity in support of the UN SDGs and climate finance goals in developing countries while mobilising far more private capital.
“By working with the MDBs you get a strong pipeline, impact and safeguarding. The loans themselves are in dollars and euros and they've got a track record of low default rates and high recovery rates,” he said, citing recent GEMS and World Bank disclosures.
Although project-level financing is not traditional for pension funds, Schepers sees great scope for their participation. B lenders are ranked pari passu with MDBs/DFIs and benefit from what he describes as their "specialised local expertise, rigorous due diligence and constructive recovery policy", as well as preferred creditor status.
Moreover, their loans are in line with other sub-investment-grade credit markets at SOFR plus 400bp.
Beyond Europe, ILX has already seen positive responses from funds in Canada and Japan.
ILX II will share ILX’s focus on four sectors: energy access and clean energy; sustainable industry and infrastructure; inclusive finance; and food security. These enable it to achieve an attractive risk/return profile with sufficient diversification and ability to scale up, Schepers said.
He stressed the impact of this form of EM investing. “Emerging markets is where you get the greatest impact. That is where the overall challenges, both in terms of greenhouse gas emissions and sustainability, are by far the greatest.”
New names
Although MDB/DFI loan syndications date back over 60 years, with IFC having pioneered B loans, neither the EIB nor BII (the UK’s US$8bn-plus portfolio DFI), have made use of the technique.
In February, ILX and BII hosted a London event on sustainable, climate and development-focused EM opportunities for more than 100 professionals with one of the fund’s grant funders, the UK Foreign, Commonwealth and Development Office (the others were the German Ministry for Development Cooperation and the Netherlands’ Directorate General for International Cooperation).
BII’s first B loan with ILX I should close “quite soon”, Schepers said. The EIB’s B loan debut appears likely to take longer, but should still happen this year.
Part of ILX's activity is an “institutional co-investment programme” with the EBRD that the European Commission guarantees through its €13.1bn European Fund for Sustainable Development Plus.
Their recent deals include financing an extension of the Izmir metro in Turkey.
Much of the ILX team brings MDB/DFI backgrounds to their roles. This includes chief investment officer Elvira Eurlings, who spent more than a decade at FMO before leading the Dutch State Treasury Agency.
The firm also recently hired a veteran capital markets banker. Jonathan Greenwood, who was ABN AMRO's head of financial institutions and real estate and is a former colleague of Schepers at Swiss Bank Corp, now part of UBS, joined last month as an adviser.
Refiled story: Clarifies recruitments