Filling the gap: Mobilising emerging market private credit

Over 50 developing nations are in danger of defaulting on their debt[1]. Many of these could be considered to be among the most biodiverse and climate vulnerable countries in the world.

In our view, emerging markets can play a pivotal role in delivering climate solutions, conserving important ecosystems and supporting communities. However, capital flows remain limited due to challenges such as perceived risk, regulatory uncertainty, and weak financial infrastructure. We believe emerging markets – and specifically emerging markets private credit – can present institutional-ready investment opportunities, while potentially delivering resilient and attractive financial returns over the long term.

We believe compelling investment-grade opportunities in emerging markets can arise by leveraging innovative financing structures. These approaches use credit enhancement through multilateral agreements and insurance, seeking to mitigate emerging market credit risk and elevating ratings. This could create a pathway to invest in emerging markets with investment-grade credit quality.

Our recent paper looked at some of these structures – including debt-for-nature swaps, outcome bonds and B-loans. You can read the full report here.

Key risk:

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, and the investor may get back less than the original amount invested. Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives. Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass.

 
[1] United Nations, ‘A new wave of debt swaps for climate or nature’, 2023