Mobilizing Institutional Investment for Impact at Scale USAID INVEST Resource Guide

“With public budgets and debt levels already strained across the world, private institutional capital is the largest reservoir of relatively untapped investment dollars, increasingly looking for financial and impact returns in faster growing developing markets.”

Cameron Khosrowshahi, Senior Investment Advisor, Prosper Africa

Who are institutional investors, and why do they matter for development?

Institutional investors are entities that pool, manage, and invest capital on behalf of other people or organizations, such as insurance companies, pension funds, and foundations. These entities are responsible for managing significant amounts of capital; in some countries, institutional investors’ assets exceed the national GDP. Pension funds, for example, have over $38.5 trillion in assets, and even a small percentage of this capital would fill the approximately $4 trillion SDG funding gap.

Source: Mobilizing Institutional Investment Learning Brief

Institutional investors can be a great match for certain types of investments in emerging markets. They possess long-term patient capital and are not dependent on immediate returns, which fits well with the longer timelines in infrastructure investments, for instance. Many institutional investors have increasing mandates to make investments that support diversity, climate action, and other socially and environmentally responsible aims. But they also have specific requirements – for example, they will typically only make larger, low-risk investments – that may require assistance to align with the areas where they’ll have the greatest impact.

The following brief captures what we’ve learned about accelerating institutional investment for development impact at scale. Below, you’ll find examples of how USAID can work with these entities for development results.

Engaging institutional investors in infrastructure and housing

Kenya: Mobilizing local pension funds to invest in improved, more resilient roads

Strong infrastructure supports economic growth, trade, and job creation. Climate resilient infrastructure will be critical in the developing world as it adapts to the growing effects of climate change. However, it is complex and costly. Kenya faces a sizable financing challenge to close its infrastructure gap. For example, only about 15% of Kenya’s road network is paved. USAID funding brought together a consortium of Kenyan pension funds to invest in Kenyan infrastructure collaboratively for the first time, with one of their first investments a groundbreaking financial instrument to finance a Kenyan road project.

West Africa: Tapping local and international institutional investors to help more households gain access to homeownership

For most West Africans, homeownership is out of reach. Rapid population growth and urbanization have created a housing shortage, exacerbated by the lack of access to affordable mortgage loans to finance purchases. Through Prosper Africa and INVEST, USAID partnered with financial advisory firms to support a Togo-based entity in creating an attractive opportunity to invest in affordable housing. With additional support from the DFC, this bond – the first of its kind on the U.S. market – raised $274 million in capital that will be used to help more households gain access to homeownership.

Nigeria: Channeling investment into infrastructure for a fast-growing population

With booming population growth, Nigeria faces difficulties in developing and maintaining critical infrastructure. USAID Nigeria, along with the Prosper Africa and Power Africa initiatives, is partnering with Chapel Hill Denham to increase the amount of private capital flowing into critical infrastructure, strengthening the capacity of Nigerian institutional investors like pension funds to invest in priority sectors like water and sanitation.

Building relationships and showcasing investment opportunities through investor delegations

Through INVEST, USAID has brought delegations of pension fund trustees and other institutional investors to various countries across the African continent, helping them gain exposure to investment opportunities firsthand.

“We’re all fiduciaries and have the obligation to explore every avenue possible to get the best returns. It’s clear that the opportunity is here, and it’s imperative that we invest. This trip changed my perspective on the risk of investing here--it’s really the risk of not investing in Africa.”

Read more in Demography is Destiny: Why U.S. Institutional Investors are Looking to Africa

“Before my first delegation to Durban and Johannesburg, my understanding of Africa was based on what I had seen on TV or read in the news, and I perceived Africa as a place of risk. But all of those perceptions quickly went out the door: I saw that Africa was filled with opportunities… On that first trip, I immediately realized that there were growth opportunities that could meet the investment needs of Chicago Teachers' and bring much needed private capital into Africa.”

Read more in Chicago Teachers Invested in Africa and You Should Too and How One Pension Fund Identified Investment Opportunities in Africa

“I had a conversation just yesterday with one of the biggest non-U.S. global pension funds. Thirty percent of what they’re investing in goes into impact investing. We were discussing how to get other pension funds to invest in Africa, and where we came out is that the very first thing that has to happen is that visual -- being there and building an understanding of the local investment landscape. Things that are far away and unknown bring forth a lot of risk adverse reactions and a lot of anxiety, which is normal.”

Read more in Why Investing in Emerging Markets is a Win for Investors and African Companies

“These delegations highlight that capital, when put to work in the right conditions and with the right alignment of interests, can have transformative effects. Teaming up with our African counterparts can be a powerful tool to get capital where it’s needed while also generating strong returns.”

Read more in Consider Yourself a Fiduciary? Then It’s Time to Invest in Africa

Additional Resources

Scaling Private Investment to Close the Development Financing Gap: Five Case Studies

This set of five case studies shows how donors and MDBs effectively engaged private institutional investors, leading to billions in private sector investment for development goals. The document also synthesizes key insights and recommendations on ways in which development actors can build on and replicate this nucleus of success and harness the scale and sophistication of global institutional investor assets.

• • •

This page is made possible by the support of the American people through the United States Agency for International Development (USAID). The contents of this page are the sole responsibility of DAI and do not necessarily reflect the views of USAID or the United States Government.