Arisaig Partners launches public markets EM impact fund

Arisaig Partners, the USD3.8 billion ultra long-term public equities investment boutique, has unveiled a new impact strategy, the Arisaig Next Generation Fund, which targets listed businesses in emerging and frontier markets that are generating positive social and environmental impacts for the world’s major underserved populations.

Arisaig Partners, which has been responsibly investing in the growth of the emerging market consumer since 1996, formally integrated ESG into its investment process a decade ago. Through its on-the-ground presence, the team is able to conduct proprietary research and engage with companies in the developing world, where progress on ESG issues is slower, but the opportunity to make a difference is far greater.

While impact investing in emerging markets has traditionally been the preserve of private equity investors, the Arisaig Next Generation Fund will invest in publicly listed businesses making significant contributions to addressing the shortfall in goods and services critical to the wellbeing of underdeveloped populations. These companies are proven, established, sustainable and have scope for further growth. Each investment contributes to improved outcomes in terms of quality or access, in relation to one or more of six themes – health, financial inclusion, education, employment, gender equality and the environment.

The investment universe comprises of about 150 high-quality companies delivering a positive impact and offering a sustainable runway for growth. Stock selection is based on analysis of a company’s investment case (expected financial returns over a 20-year horizon) and impact case (which uses the Impact Management Project’s five dimensions of impact framework), as well as Arisaig’s governance checklist and environmental and sustainability risk assessments. Additionally, companies are scored on three impact dimensions – reach, criticality and effectiveness – resulting in a concentrated portfolio of approximately 25 companies.

The Next Generation Fund is led by David Lanning, who has a decade of experience researching emerging markets, having worked across Arisaig’s regional teams in both Asia and Latin America. He will be supported by Lillian Wang, who joined the team this year. She is a former impact consultant who will be the fund’s impact assessment and engagement director.

The team will lean heavily on Arisaig’s long-established global footprint to maximise the incorporation of local insight into the investment process and maintain close contact with stakeholders and company management teams across the emerging world. Reflecting the diverse markets in which it invests and its commitment to diversity, Arisaig Partners is majority female and BAME, and its Managing Partner, Rebecca Lewis, is a woman.

Lanning says: “This unique product brings the pioneering impact work undertaken by private equity investors to public emerging markets, where we believe there is much more scope for impact. By targeting established high-growth businesses, we can be sure this impact will spread to hundreds of millions of developing world citizens as they scale. In addition, providing publicly listed businesses with semi-permanent capital enables expansion at a sustainable pace, without leaving them subject to the exit requirements of major investors.

“We are seeing a plethora of exciting companies using technology, scale or business model efficiency advantages to tackle the neglected base of the pyramid for the first time, while generating substantial shareholder value. Covid-19 has clearly accelerated the take-up of digital financial services and education businesses; while affordable private healthcare providers have played an invaluable role in tackling this unprecedented public health crisis.”

Rebecca Lewis, managing partner at Arisaig Partners, adds: “We are proud to offer this solution to investors, as it represents a natural extension of our core ESG approach. As patient long-term holders of capital, it is in our best interest to nudge our holdings towards the most sustainable trajectory for maximising long-term financial returns.

“Investors who increasingly seek to maximise positive impact alongside financial returns should prioritise emerging and frontier markets, where population sizes and scope for impact are greater. The Next Generation Fund identifies businesses for whom positive impact generation is intrinsic to the business model and, therefore, achieve compounding growth in tandem with the top line.”