Guest Blog Post by Magnus Berg Johansen about Workshop D1 at TBLI CONFERENCE EUROPE 2015 on Development Finance and the role of the Swiss banking sector. The moderator Sabine Döbeli, CEO Swiss Sustainable Finance was joined on the panel by Patrick Elmer: Head Business Development at Blue Orchard, Christian Etzensperger, Head Corporate Development and Strategy at
ResponsAbility Investments AG, and Andrea Heinzer: CIO and Partner at Obviam AG.
Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE.
What are the main reasons for capital not to be allocated into development investments? And how come it is so that Switzerland with all its financial capacity does not generate new innovative financial vehicles?
These were some of the questions that were raised during the session that took a closer look at three different financial institutions that generate returns for their shareholder by investing in developing countries.
The session started off with Patrick Elmer from Blue Orchard discussing the issues of why funds do not find the way into these types of vehicles – because there is enough capital.
Andrea Heinzer from Obviam AG then took over and presented some of the various challenges that exist and hinder more capital movemenet into impact investing.
Lastly, Christian Etzensperger from ResponsAbility demonstrated how a fund can generate an impressive 30 percent growth per year in assets under management, mainly by attracting funding from private sector. The fund is continuously growing, and this is demonstrated with ResponsAbility's plans of opening a new office on the African continent. According to Etzenserger, however, there is still a great need for financing to reach the Sustainable Development Goals (SDG).
He showcased how the emerging markets need an annual SDG financing of USD 4,5tn, while the current assets under management of Swiss banking is at USD 6,7tn. At the same time, the annual transfer cost of the German unification was EUR 100bn. More specifically he showed the need within the various sectors in emerging markets.
Strong abroad, but not at home?
Following the presentations, one of the questions posed by the moderator was: Why does it seem that Swiss investors have been active abroad, but not so much at home?
Among the answers that circulated the room was that there might have been a mismatch between offers and the demand among traditional financial investors.
Eg. one issue was that there could very easily just have been too many offerings and products, but not enough need for them.
Christian Etzensperger commented that swiss pension funds are in general conservative, and it does not balance out the high level of financial competence when it comes to investing in impact investing locally and around in Europe.
On the other side, he did underline that the share of institutional investors on the shareholder side of ResponsAbility is growing and that they are currently representing around 50 percent. So the interest in expanding their portfolio towards the emerging market is increasing.
One thing that puzzled him though was the lack of innovative distruption. The biggest names in this industry, among others including ResponsAbility and Blue Orchard, are all from the same vintage. The fact that there are not any new actors coming up should be considered a lack of a flourishing environment and is not ideal.
Another questions that was raised in the audience was whether institutions such as ResponsAbility and Blue Orchard compete for the same sources of funding, and if so, how they pitch themselves to these investors that approach both of them.
Patricl Elmer from Blue Orchard responded that the market of investors that are willing to expand their footprint in emerging markets is still very small in Switzerland. And that what is currently happening is a friendly competition, among others between ResponsAbility and Blue Orchard. This friendliness obviously comes from the fact that they both try to advocate for an expansion of this market – as that is the bottom line of their organizations existence.
Etzensperger underlined that he prefers competition and as such to make the market even stronger. He moreover confirmed that it was common to have investors approaching both and trying to use one against the other to make as good a deal as possible. According to Etzensperger, this should be the case and is just a natural effect of a competitive market.
The last questions presented by the moderator was what should change to make it easier to grow and thus have a bigger impact in developing countries, the panelist responded the following:
Andrea Heinzer said she would wish to see some regulatory changes. Currently the environment is challenging.
One of the fund managers mentioned for example that it is currently impossible to register a fund with public distribution – the core model that started the great growth seen by ResponsAbility.
Patrick Elmer followed up by mentioned the general issue of awareness and understanding of the subject and the great opportunities that lie in this financial vehicle, before Christian Etzensperger finished off by saying this is an example of how these funds need to continue working hard on positioning – to make it clear that we are talking about investments, not about philantropy.