The Amsterdam-based ILX fund has made its first $400m (€365m) of investments on behalf of Dutch pension funds ABP, BpfBouw and Vervoer, financing 17 projects in nine countries, Elvira Eurlings, the fund’s chief investment officer, told IPE.
ILX launched its first fund last year, raising a total of $1.050m from the three pension schemes to invest in syndicated loans originated by development banks such as the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank, the Inter-American Development Bank and African Development Bank.
Since its official launch in June 2022, the fund has signed $400m worth of investment contracts with these banks. It hopes to invest the remaining $650m in commitments over the next 12 months, and is already preparing to start fundraising for a second $2bn fund.
“We could do this with our existing clients ABP, BpfBouw and Vervoer, but we are also looking outside the Netherlands. We hope Nordic pension funds are also interested,” said Eurlings.
The idea behind ILX is to mobilise institutional private capital to help fund projects in emerging markets financed by international development banks.
“In practice, this means that we take over part of the credit portfolios of these banks. For example, if the EBRD provides a €50m loan for a certain project, we take on a €20m portion of this, freeing up capital for the bank to make more loans,” said Eurlings.
“In total, we now have made 17 investments in nine developing countries, from El Salvador to Chile and Nigeria to Mongolia,” she added.
Sjacco Schouten, the head of emerging market debt (EMD) at ABP and BpfBouw’s asset manager APG, told IPE last year his firm intends to invest up to 3% of its EMD portfolio in this type of loans.
Turkey fish farm
ILX has invested in a sustainable fish farm in Turkey (see image) together with Dutch development bank FMO.
“This firm, originally active in Bodrum in the Southwest of Turkey, is expanding its operations to the Black Sea region with this investment. The firm emits 40% less CO2 than the sector average, and we consider this project an investment in climate adaptation in order to be prepared for the future consequences of climate change,” said Eurlings.
The majority of ILX’s investments is now made up of participations in loans to local banks in emerging market countries. These banks then use this money to lend it to local SMEs.
“Our goal for this year is to reduce our dependence on this type of loans and invest more in direct project financing,” said Eurlings.
Here, ILX focuses on three themes: sustainable energy, industry and infrastructure and agribusiness. “Especially on the latter theme, we have not yet found many investment possibilities. We hope that will change this year.”
Floating rate structure
Fixed income investors have been hit hard by rising interest rates over the past year and a half.
But the ILX investors have been insulated as the loans they invest in, which are originated in dollars and euros, have a floating-rate structure.
As a result, borrowers now pay the risk-free rate of around 4% plus a credit margin of 3-5%.
“It’s true that financing costs have risen. This makes it more difficult to find viable projects,” Eurlings noted. “But our experience is that there still are sufficient interesting projects left to finance at the current level of interest rates,” she added.
It’s not an option for ILX anyway to reduce interest rates in order to help strained borrowers. “The floating rate structure of our credit portfolio is an important reason for pension funds to invest with us,” she said.
Uzbekistan solar plant
ILX has invested in the development of three solar plants in Uzbekistan.
“These projects are among the first large-scale solar projects in the country. The Uzbek government wants to have 5GW of installed capacity in 2030 – this compares to 19GW of capacity installed in the Netherlands at the end of 2022. The 900MW capacity of these parks will contribute significantly to this goal,” said Eurlings.