Legatum is the largest private investor in the $100m SDG Outcomes Fund developed by UBS Optimus Foundation and Bridges Outcomes Partnerships. CEO Mark Stoleson explains why they are backing this blended finance structure.
In brief
- Legatum is investing $10m of risk capital for UBS Optimus Foundation’s SDG Outcomes Fund
- Fund enables investors with differing risk appetites to finance socially and environmentally beneficial projects
- Stoleson optimistic that fund will prove scalable and provide a blueprint for others to follow
The SDG Outcomes Fund is an innovative mechanism designed to attract a wide range of types of capital from both public and private sources to traditionally hard-to-fund high impact projects targeting UN sustainable development goals (SDGs) in areas such as health, education, economic empowerment, and the environment.
As an outcomes fund, the aim is to bring in investors to provide the upfront costs of a project, who will then be reimbursed, potentially also with a financial return, by the project’s sponsor – often a company or NGO – if specified targets are met.
For Mark Stoleson, CEO of investment firm Legatum, this type of mechanism could prove key to unlocking investment in much-needed large-scale projects with social and environmental benefits in the developing world.
“To me, this is a classic, financially engineered solution that is so elegant, bringing together different parties with different kinds of capital and different levels of risk tolerance, to all drive a solution that wouldn’t otherwise have existed. It’s one of the reasons we’re very excited about this space,” he tells Impact Investor. It’s a view of the benefits of collective action that chimes with that of UBS Optimus Foundation CEO Phyllis Costanza, as she explained to Impact Investor in a 2022 interview.
Legatum is investing around $10m in the fund, making it the largest third-party private investor. Other private funding has come from family offices, including the Tsao family office and other high-net-worth individuals.
On the development finance side, investors include development finance institutions British International Investment and the US International Development Finance Corporation.
UBS Optimus, backed by donations from over 30 UBS clients, is providing 20% first-loss capital to unlock additional impact-driven capital. Bridges Outcomes Partnerships – part of UK-based Bridges Fund Management – is managing the fund.
Template for collaborative investment
Stoleson hopes the fund will set a template for collaborative investment for others to follow and says it mirrors a way of working that has been prevalent in Legatum’s philanthropic work for some time by encouraging a diverse set of actors to work together.
The company, while mainly a conventional private investor, also makes philanthropic and other impact investments, having helped found the END Fund, which was formed to control and eliminate the five most common neglected tropical diseases, and the Freedom Fund, a private collaborative fund seeking to end modern slavery.
The ability of the SDG Outcomes fund to drive private investment in projects that would have been beyond the compass of a single organisation is one of its most important features – a benefit which Stoleson says was well-illustrated by a project to clean up plastic waste in Nigeria, one of several projects the fund is supporting.
Entrepreneurial social enterprise Wecyclers has been working with consumer goods producer Unilever Nigeria since 2014 to scale up operations that take plastics waste out of the environment and turn it into raw material for industry. The aim is to collect more than 34,000 tonnes of plastic waste over the next five years, create over 700 jobs in recycling franchises across Nigeria, and improve the incomes of thousands of waste sorters.
While Unilever Nigeria will pay for successful outcomes achieved during the $2m programme, it benefits from having an investor like Legatum take on some of the startup risk by providing the upfront costs, so the outcomes structure makes sense for both Legatum and Unilever, who have different risk appetites, according to Stoleson.
“UBS provides the structure, Bridges provides the management, Legatum the risk capital and if the project is successful, which we believe it will be, Unilever will cover the costs of the entire programme. Everyone is united around the same objective, to clean up tonnes of plastic waste and create jobs, while each party plays their own, crucial role,” says Stoleson.
Under the terms of the fund, Legatum will get its money back if the project is successful, with a 2.5% margin on top for taking on the upfront risk.
“That’s a tenth of the commercial return we would be looking for in our investment fund. Why are we doing this? Because, if it works, we get to recycle our philanthropic capital. We get our money back with a small return, so that we don’t seriously deplete that capital, and then we can just use it to go and do the same thing all over again,” he said. “The big goal here is to be a case study, to be a story for other investors to show that if you’re a capital provider you don’t have to just spend your money on projects and have that money disappear.”
END Fund
Stoleson is optimistic that the SDG Outcomes Fund will be as scalable as the END Fund has proved to be. The seed for its work was an article in the Financial Times newspaper highlighting that intestinal worm affecting more than 1.5 billion people, largely in developing countries, could be remedied for as little as $0.50 a treatment at the time, but that these treatments were not widely available.
Legatum figured this was a problem it had the resources to help with and set up a project to show proof of concept in Rwanda and Burundi that could then be scaled up.
The company invested $10m to undertake a multi-year programme, working closely with on-the-ground implementers, pharmaceutical companies and the health ministries of the two countries to help eliminate these diseases. By facilitating the necessary repeat treatments, the programme reached a record 8.5 million people in just three years, many of them children and achieved major public heath milestones by reducing the prevalence rates of the diseases to below the World Health Organisation’s threshold of 10%.
The END Fund was founded in 2012 to build on this success by mobilising investment from collaborative donors to help scale up work with intestinal worms, as well lymphatic filariasis, river blindness, schistosomiasis and trachoma. The fund now operates across Africa, India and other parts of Asia and has provided 1.23bn treatments between 2012 and 2021.
“It’s the world’s largest privately-funded deworming campaign, but it retains that spirit of partnership and collaboration,” Stoleson explains. “So, when I see this trend towards outcomes, partnerships or outcomes contracts like the UBS SDG Outcomes Fund, it feels like it is an extension of what we’re seeing elsewhere, which is people collaborating and getting amazing things done.”
