When the first Latin American Impact Investment Summit took place in 2018, the region’s impact investing ecosystem was largely built around known capital channels—established fund managers in the US and Europe—and the major markets of Mexico and Brazil. But smaller ecosystems were quietly coming together; fund managers from the region were designing new investment theses based on their local knowledge.
Now such strategies are becoming a more intentional focus for Latin America’s expanding roster of impact investors.
“It’s about developing the next generation of fund managers,” says Justin Schwartz of Impaqto Capital, the Quito-based fund manager that organizes the convening, known as CLIIQ. “Investors are realizing that their impact could be deeper with more proximate fund managers because of the types of companies and opportunities those fund managers can access.”
Those local managers and ecosystem builders will be front and center at this year’s convening in Quito next week. The summit’s themes also include investing at the intersection of climate and gender and tech for development, in addition to local ecosystem building. With the COP30 climate summit happening in Brazil later this year, Schwartz expects much of the climate conversation at the convening to coalesce around preservation and restoration of the Amazon rainforest, one of the world’s biggest and most vulnerable carbon sinks and hubs of biodiversity.
“COP in Brazil is putting Latin America in the spotlight of the global conversation on climate, particularly the Amazon,” says Schwartz. “Being in Ecuador and hosting a conference that attracts a lot of people from South America especially, there will be many different conversations around blended climate finance in the Amazon.”
Schwartz spoke with ImpactAlpha ahead of CLIIQ to share his observations about Latin America’s evolving landscape of impact themes, emergence of new fund managers and investors, and what local ecosystems need to scale promising models of impact entrepreneurship and finance.
“There’s a realization that the tools of market-rate finance are often not the right ones—that the tools of finance need to be expanded and adapted to the realities of local markets,” says Schwartz. “There’s definitely appetite from investors for new models.”
On the evolution of Latin America’s impact investing scene: “This is the seventh edition of CLIIQ. Since the first one in 2018, we’ve seen the impact investing ecosystem in Latin America evolve. We’ve seen a lot more actors, whether they are funds, accelerators, other ecosystem players, showing interest in Latin America, including from people outside the region. We have an agenda with speakers from 14 different countries throughout Latin America as well as North America and Europe.”
On the region’s growing attention to nature-based solutions and conservation finance: “The Amazon is a key topic, whether we’re talking about climate change or biodiversity. We’re fairly early in the journey. Funds are still in the pilot phase, trying out models and seeing what works. A conversation needs to be had around effective ways to finance scalable climate and nature based solutions.”
On the need for financial innovation: “The entire investing ecosystem uses the traditional tools of finance. Multilateral institutions have one way they invest. Big foundations often have check-the-box requirements for investing. That trickles down to funds’ requirements and expectations.
“We need to adapt the financial toolkit to the realities on the ground and unique local needs, particularly in smaller markets. At CLIIQ, we have a lot of people coming from the Andean region, Ecuador, Peru, Bolivia, Paraguay, and the needs of companies in these smaller markets might be different than in Brazil and Mexico. Also, agricultural cooperatives or or entrepreneurs with innovative startups, or biodiversity credit projects—each of these segments needs its own kind of financing solution. For nature-based solutions, the tools of market-rate finance are often not the right ones.
On investor appetite for new investment strategies: “There is appetite [from investors] for new models. We’re doing revenue-based financing and some innovative debt structures. We see that there’s a realization that the tools of market-rate finance are often not the right ones—that the tools of finance need to be expanded and adapted to the realities of local markets.”
“We’re also seeing a realization that we need to support fund managers based in the markets where they’re investing. They have the best access to deal opportunities and are closer to the impact.
“Five or 10 years ago, most of the funds investing in Latin America were based outside the region. But the ecosystem is reaching a level of maturity where there are enough local managers, and LPs are looking for on the ground expertise. Part of that interest is the realization that the impact could be deeper with a more proximate fund manager. Part of it is realizing the need to develop the next generation of fund managers.
“There’s also an interest in supporting fund managers with smaller fund sizes because they’re investing in smaller and younger companies. There’s a need for that because there’s a big gap in access to capital at those initial stages.”
On engagement of local investors in impact investing: The majority of impact capital still comes from outside the region, but we’re seeing more local corporates and foundations investing in local funds. In our case, we raised about 4-% to 45% of our fund from investors in Latin America.
There’s definitely an education piece that’s needed, because a lot of them are just getting started on their journeys in impact investing.
On the importance of blended finance: “Blended finance is a really key tool for innovation. But blended finance is hard to scale, because it’s an ad hoc endeavor by nature. You’re mixing different types of capital and finding the right people who are willing to finance the different layers of the capital stack.
“USAID was doing a lot of good work in terms of funding blended transactions. We haven’t seen really many other development [institutions] willing to do that because they [seem to want] their grant capital to be used directly to generate impact, rather than catalyzing other capital. Now the question needs to be asked: Why aren’t there more funders for blended finance?”
On the need to step up ecosystem building and collaboration: Entrepreneur support and technical assistance is really crucial for the whole ecosystem, because a lot of companies need support in order to become investment ready and to scale their solutions. We need to go beyond capital and be more hands on. Investors can be a part of that, but we need accelerators and incubators and other ecosystem building organizations, as well as new networks for peer learning.
In these times that feel a little uncertain, I’m a big believer in creating [shared] spaces and facilitating conversations and connections.
发表回复