Promoting Sustainable Growth Through Strategic Partnerships and Innovative Finance
Emerging markets face a daunting challenge: a $4 trillion shortfall in achieving the UN’s SDGs and climate goals. ILX Management, established in 2022, has devised a scalable model to channel private capital into these regions. By collaborating with Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs), ILX mitigates investment risks and attracts substantial institutional funds, primarily from pension providers.
Addressing the Financing Gap with Institutional Capital
Institutional investors represent an untapped reservoir of capital that could significantly narrow the funding gap. According to OECD data, reallocating just 3.7% of global institutional assets towards sustainable activities in developing countries would suffice to fill this gap. ILX leverages this potential through its private debt funds, ILX Fund I and II, which focus on syndicated loans originated by MDBs and DFIs. These loans are structured to ensure both financial stability and alignment with development and climate finance objectives.
By co-investing alongside MDBs and DFIs, ILX reduces perceived risks associated with emerging market investments, making them more appealing to institutional investors. This strategic partnership not only mobilises private capital but also preserves scarce concessional funds for projects where they are most needed.
Expanding Investor Base and Portfolio Diversification
ILX’s initial success was marked by the launch of ILX Fund I in early 2022, anchored by Europe’s largest pension fund manager, APG, with an initial commitment of $750 million. Achmea Investment Management also contributed, bringing the total commitments to $1.05 billion. In 2024, ILX launched its second fund, ILX Fund II, attracting commitments from Danish pension providers Sampension and Akademiker. The original investors increased their allocations, pushing ILX’s Assets under Management (AuM) to $1.7 billion.
This expansion underscores ILX’s ability to attract a diverse investor base while providing access to a broad and diversified portfolio. Loans organised by various MDBs and DFIs, including ADB, DEG, EBRD, FMO, IDB-Invest, and IFC, offer stable returns that are largely uncorrelated with public market volatility. This diversification mitigates risks and provides pension funds with a reliable investment landscape.
Impactful Sectors and Economic Development
ILX’s investment strategy focuses on core sectors such as infrastructure, renewable energy, agribusiness, manufacturing, and financial institutions. These sectors not only offer attractive risk-adjusted returns but also contribute significantly to economic development and environmental sustainability in emerging markets. By investing in these areas, ILX ensures that investors do not have to compromise on returns for impact; instead, they achieve both.
The success of ILX Fund I exemplifies the viability of this innovative approach. Aligning the interests of institutional investors with development objectives, ILX has created a replicable and scalable model adaptable to various contexts. Pension funds, with their long-term investment strategies and risk profiles, are ideal partners for MDBs and DFIs, further enhancing the effectiveness of this model.
Setting a Precedent for Future Initiatives
As the global community seeks effective mechanisms to finance the SDGs and climate goals, ILX stands out as a testament to the power of strategic partnerships and innovative financial structures. The firm’s co-investment model not only addresses the pressing need for development finance but also sets a precedent for future initiatives aiming to channel finance where it is needed most.
ILX’s innovative approach will be discussed at the OECD Community of Practice on Private Finance for Sustainable Development Conference in Paris. Scheduled for February 4-5, the conference will convene over 500 professionals to exchange policy solutions and advance the mobilisation agenda towards the 2030 Sustainable Development Goals and beyond.