Allianz and Skandia among investors to allocate $1 billion to green loans fund
German insurance giant and Sweden's insurer Skandia are among a group investors that will allocate $1.1 billion to a new sustainable loans fund.
The new investment vehicle, believed to be one of the largest 'blended finance' funds ever, will provide loans to emerging countries in order to help them meet their sustainable development goals, Nic Wessemius, managing director at FMO Investment Management, confirmed to Net Zero Investor.
FMO, the Holland-based entrepreneurial development bank, brought the investors together, which - apart from Allianz and Skandia - also comprises of the John D. and Catherine T. MacArthur Foundation, which committed a $25 million guarantee for credit enhancement.
Wessemius, who declined to reveal the exact capital allocations per investors, stressed that the two asset owners were prepared to come on board after they agreed "a first loss investment for FMO, coupled with MacArthur’s."
So FMO will take the first loss when loans not materialise or are not repaid, with the additional $25 million safety net from the MacArthur Foundation.
Effectively, this means that Allianz, which has around $2.3 trillion in assets under management, as well as $87 billion Skandia will be the last investors to risk a loss.
Blended finance typically sees providers of public money, most commonly development banks, government departments, niche finance institutions and charities, agree to accept more risk in an investment vehicle in order to give private investors some comfort and encourage them to join.
Generally, most pension funds and other asset owners are not keen on emerging market risks for 25 years.
However, the structure that was proposed by FMO is that Skandia and Allianz will start receiving returns once the first loans are being paid back, most likely within a few years.
The fund plans to pour funds into a portfolio of about 100 loans in the energy and sustainable agriculture sectors with the main aim to drive growth and sustainability standards in developing countries.
"Investors in the fund are providing capital for high-impact loans to local companies and projects across Latin America, Asia, Africa and Eastern Europe," Wessemius said, adding that FMO will manage the loan portfolio.
He disclosed that, so far the fund has greenlit close to $100 million worth of initial loan investments.
His team comprises 40 due diligence experts who will "scrutinise, supervise and monitor loan recipients to ensure money is used as intended and failure to do so could trigger an event of default, meaning immediate repayment," Wessemius concluded.