Only a few people in the world can afford to be fitted for a bespoke, tailored suit. It is a very expensive, complex, time-consuming process that requires masters of the craft. But the end result fits perfectly—literally tailor-made to the customer’s exacting specifications.
Until now, the world of blended finance has been like stepping into the tailor’s emporium on London’s Saville Row or New York’s Madison Avenue.
Blended finance can mean different things to different people, but broadly speaking, it involves layering public, philanthropic and private capital into a single investment structure, with each layer bearing a different level of risk and return. When well-designed, these structures enable private investors to access opportunities that would otherwise fall outside of their risk-return thresholds—unlocking new markets, diversifying portfolios, and generating measurable impact.
For development finance institutions like British International Investment, BII, or the International Finance Corporation, blended finance could be a force multiplier: it allows scarce concessional resources to catalyse significantly greater volumes of commercial capital for development impact.
Except it doesn’t when it comes to blended finance funds. It mobilizes only about $15 billion per year—give or take. The main reasons for this chronic shortfall are the same reasons why most people don’t go into a bespoke tailor: it’s too expensive, too complex and too time consuming. And for each new suit, a new fitting is required.
Why does this matter? Because the only way we can begin to meet the world’s development and climate challenges is by mobilizing private capital at an unprecedented scale. And blended finance has a key role to play.
That’s why BII and BCG have teamed up to produce “Scaling blended finance: Practical tools for blended finance fund design,” a new paper for asset managers of all hues and dispositions. It reveals that blended finance can and should be regarded as a made-to-measure proposition rather than a bespoke suit.
Five fund models
The paper looked at 65 blended finance funds and found that although each seemed unique, most of them actually fall into one of just five archetypes. These archetypes are differentiated from each other by fund purpose, institutional investor risk appetite, and underlying asset risk. While not rigid structuring templates, they provide a practical reference for fund managers and investors to design, assess, and capitalize blended vehicles more efficiently.
Similar to the way reference points have been established over time for other products (for example, growth equity, buyout, venture capital), these models will help investors in blended finance funds quickly understand what to expect from the structure, and where due diligence will typically need to focus.
The paper also includes a scorecard to assess the quality of a blended finance structure in a systematic and consistent way. It serves as a tool for fund managers, as well as commercial and concessional investors, to determine whether a fund’s structure aligns with its objectives, balances stakeholder priorities, and adheres to best practices. While commercial and impact assessments are well-established, this scorecard fills an important gap, by providing a structured approach to evaluating blended finance fund structure alongside existing due diligence frameworks.
Asset managers can use the five archetypes in the paper as reference points for fund design. Where a fund does not fully correspond to one of these archetypes, the typology can help identify and justify those differences. The scorecard can help ensure the fund design aligns with investor expectations. These tools provide fund managers with an independently generated rubric to articulate trade-offs and provide clarity around the implications of incorporating divergent investor objectives.
Investors can use the archetypes and scorecard to evaluate the structural characteristics of funds systematically. They can leverage the archetypes to benchmark fund designs and use the scorecard to prompt discussions about potential misalignments or risks.
And donors and other providers of concessional capital can use these archetypes to help determine the amount and terms of concessional capital they make available, based on the types of assets they aim to finance and the types of investors they wish to attract. They can, like private investors, also use the scorecard to assess the viability and misalignment risks associated with a particular fund proposal.
We are not quite at the “off the rack” stage of the blended finance industry’s development. But we are perhaps able to offer a “made to measure” approach to blended finance, where we can take a suit off the hanger, and then we only need to shorten the sleeve or take out the waist for it to do the job of a bespoke suit, but at a fraction of the price.
Leslie Maasdorp is the CEO of British International Investment, the UK’s development finance institution.
Rich Hutchinson is a managing director and the global head of social impact at BCG.
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