What if mobilizing private investment means undermining your own profits?
To achieve the Sustainable Development Goals (SDGs), private investment in emerging markets will need to go from billions to trillions. Development Finance Institutions like us have a key role to play, as we aim to attract more institutional investors to our markets. This mobilizing role enables us to act as an accelerator boosting investments in developing countries.
The dilemma is not about impact, because we know that if institutional investors can build up a positive track record in our markets, they will scale up and invest more directly themselves at a later stage. The dilemma is about our profitability. FMO needs to be financially sustainable. Income from interest adds more to the bottom line than advisory and management fees.
There is more than profit
We continue to scale-up mobilizing also because we feel there are more factors to consider than just profitability: we need to maintain our reputation as leading impact investor and reliable long-term partner to investors and fund managers. Investors themselves bring scale and drive institutional quality. And we believe in the power of partnerships for the goals (SDG 17).
Mobilizing at scale may compete with growing our own profitability. For that reason, we optimize the allocation between our own portfolio and our mobilized portfolio. We first determine our required portfolio growth and then determine how much we can mobilize private capital from institutional investors.
During 2019, we laid the foundations for two significant new partnerships to mobilize large sums over the coming four years. These require FMO to step up its asset sourcing, looking to larger deals and more efficient execution as possible solutions. Meanwhile we increased our minimum hold in all loans to 20% or US$10 million (whichever is higher), thus safeguarding our own books and improving alignment with investors.