Investments in emerging market impact debt have consistently outperformed developed market debt of the same credit quality, according to the London-based emerging market assets manager.
Ashmore has launched an emerging markets impact debt strategy, at a time when there is an estimated $24trn (€17.9trn) funding gap to achieve the United Nations SDGs in developing economies.
Until recently, the impact investment opportunity in emerging markets had mostly been limited to illiquid private assets with limited scalability, according to the emerging markets manager. But in the past four years, the market for emerging market impact debt has jumped to over $600bn from $75bn, tackling all 17 UN SDGs, according to analysis by Ashmore.
With the convergence of these two trends, Ashmore created a dedicated impact team last year, Simon Cooke, head of impact debt at Ashmore Group, told Impact Investor.
“Our ambition is to contribute to a step change in emerging markets impact investing, developing scalable impact strategies with multi-billion dollar capacities that help address the world’s most pressing environmental and social challenges, while delivering market rate risk-adjusted financial returns. This strategy marks the first step towards that goal,” Cooke said.
Cooke went on to say Ashmore would initially be targeting institutional investors.
“But as the strategy is a daily dealing fund, targeting market rate risk-adjusted returns in a liquid asset class, it is potentially suitable for all investors: impact-focused and traditional, institutional and retail. Our hope is that over time emerging market debt impact investing becomes mainstream, as all types of investors recognise its incredible potential.”
Outperformance
While emerging markets are home to 85% of the world’s population and cover 77% of its land, they produce three-quarters of all global emissions and are home to the world’s poorest people, according to Ashmore.
Investments in emerging market impact debt have consistently outperformed developed market debt of the same credit quality, Ashmore analysis of JP Morgan and Bloomberg indices this month showed. In fact, every dollar invested in emerging markets may generate two to 20 times more impact across the UN SDGs than the same amount invested in developed markets, said the firm, citing analysis of JP Morgan and Bloomberg indices, using LGX data, this month.
“That’s the beauty of impact investing in emerging market debt; it allows you to combine excess returns, transformative impact, scalability and daily liquidity in a more powerful way than other parts of the fixed income universe,” Cooke said.
The firm says that every potential investment will be scrutinised by its impact assessment and fundamental assessment process, which will look at whether it contributes to at least one of the 169 UN SDG targets and generates positive outcomes such as reducing greenhouse gas emissions or boosting digital connectivity. Any potential investment must not significantly harm any other UN SDG. Ashmore further said it plans to publish an annual report on the impact of each holding.
Ashmore, which was founded in 1992 as part of the Australia and New Zealand Banking Group, listed on the London Stock Exchange in 2006 after becoming independent in 1999. Headquartered in London, with 10 offices across the world, the group managed $46.2bn as the end of March.
