Constantin Augier
Portfolio Manager & Analyst
As a new fund in the Rothschild & Co range, R-co 4Change Impact Finance offers to invest in Emerging markets through microfinance, a vehicle aimed at generating a positive social impact among communities excluded from the “traditional” financial systems.
What is the R-co 4Change Impact Finance fund?
C. A.: R-co 4Change Impact Finance is a microfinance investment vehicle. This type of investment product is similar to a private debt fund and therefore operates outside of the listed markets. It can therefore be seen as an interesting diversification solution as part of a global allocation due to its decorrelation with the main asset classes and its low volatility target. The portfolio is invested in a number of mid-sized MFIs selected by our partner Symbiotics, through loans with a maturity of 12 to 36 months. These amounts lent to institutions will enable them to provide the financial services they offer.
What makes this fund different from a “traditional” fixed income fund?
C. A.: The main difference comes from the portfolio’s risk/return profile. This type of fund is intended to have a very low volatility and is not correlated to key interest rates and “traditional” asset classes. Apart from credit events, this investment solution ensures stable returns. The second important point here concerns liquidity. A “traditional” fixed income fund can offer daily liquidity thanks to its market that allows it, but in our case, liquidity is only available quarterly, to the extent that to remove a loan from the portfolio, we must wait for it to reach maturity.
Are there any specific risks associated with this particular asset class?
C. A.: Investing in emerging countries via microfinance does indeed involve certain risks, in particular country risk on the economic, political and macroeconomic fronts. However, Symbiotics carries out a macroeconomic analysis before any investment is made. The beneficiaries assessed must offer guarantees and a certain stability in terms of these three aspects. Regarding the currency issue, we have chosen to fully hedge the currency risk within the portfolio. Finally, it is important to note that the risk of default by MFIs is quite low, due in particular to the size and maturity of the loans granted. Nevertheless, to limit this risk, we position ourselves on fairly short maturities, not exceeding three years, in order to not expose ourselves excessively to the lack of visibility to which some institutions may be subject. A valuation committee is organised every month. In case of a credit event, Symbiotics will contact the institution concerned seeking to identify the reason. As a result of this analysis they will therefore reflect on the solutions to be implemented. This company has long expertise in the management of such cases and has set up a particularly well-established process.
How does Symbiotics identify the MFIs in which they invest?
C. A.: Symbiotics has three major regional analysis offices in Latin America, Africa, and Asia, as Central Europe and Middle East are cover from Geneva. Each of them has some ten analysts in charge of about fifteen MFIs in two or three different countries. These analysts regularly visit the areas they are responsible for, to meet with the MFIs in which they have invested in or to identify new ones. Each MFI identified is the subject of a social impact study based on 98 objective, transparent and mostly quantifiable criteria, structured around major themes such as social governance, working climate, financial inclusion, client protection etc. The resulting assessment is in the form of a scale including both the positive and negative impacts of the institution studied.
What indicators do you use to assess the social impact of your investments?
C. A.: We have access to a monthly report through which we know the number of end clients who have benefited from our investments and the gender distribution, but also the average amount of financing, whether such financing has benefited rural or urban communities and the nature of the activities concerned. However, among the indicators used to measure the positive impact of an MFI, the number of regular borrowers is particularly revealing. Symbiotics also publishes a detailed annual report incorporating feedback from MFIs and micro-borrowers who have benefited from financing from the portfolio.
Find all the informations available on the fund : R-co 4Change Impact Finance
