June 5, 2018

Financial Inclusion For Emerging Economies—A Case For Private Debt Impact Investing

By John Beckham, Chief Investment Officer, MicroVest | June 5, 2018 | Featured in Financial Advisor Magazine

The impact investing industry marks another phase in its evolution by welcoming to its ranks deep-pocketed private equity firms like TPG, Bain Capital Management, and most recently KKR. Although the entry of these credible players is welcomed, private debt investment funds (PDIFs) have been quietly delivering good returns and scaling impact for many years. MicroVest’s experience managing PDIFs targeting financial inclusion in emerging markets demonstrates their proven track record. PDIFs continue to be an attractive investment vehicle and highly effective means to foster sustainable economic and social impact. While both debt and equity strategies make needed capital available to meet the United Nations’ Sustainable Development Goals, investors must consider which investment approach most appropriately achieves their impact and financial objectives.

Let’s step back a minute to review important differences between private equity and debt investment strategies. PDIFs issue loans that generate returns to investors from the interest borrowers pay back over time. A prudent debt investor will evaluate the borrower’s cash flows to ensure they can pay the loan and interest. This differs from the private equity model, where investors buy shares in companies with the expectation that they will be able to sell them later at a higher price. A successful private equity investor often will buy shares based on the potential to generate increased cash flow over a set period of time.

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