Trends Watch: Global Impact Investing in Emerging Markets
- Aug 31, 2023
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Patrick Fisher, Founder & Managing Partner, Creation Investments Capital Management.
What is your outlook for global impact investing in emerging markets?
Emerging markets (EM) are not a uniform category, but rather a disparate set of countries containing the best and worst impact investment opportunities for the short-, medium-, and long-term. That said, EM offers impact investors the biggest bang for the buck, providing outsized and missionally aligned returns to those who can meet the basic needs of nutrition, education, mobility, energy, health care and financial services a massive population. While developed markets, such as the U.S. and Western Europe, have plenty of market gaps that impact investors need to fill, the demographics of EM present a myriad of opportunities to serve low-income and excluded groups providing a path out of poverty and engaging early in the transition to clean energy. COVID-19 seems to be in the rearview mirror and local GDP growth will accelerate in EM much beyond developed markets. Further investments of human and financial capital will generate multiples of financial and social return in EM.
Where do you see the greatest opportunities and why?
We are really excited about India. Our portfolio is mainly comprised of Indian companies, and we are very optimistic about the future of this country and believe the poor and unbanked will have access to financial services. Due to the strong regulator and capital markets framework, there are many investment opportunities that are trying to bridge the gap in access to financial services. Furthermore, India's growth has been hugely boosted by the influx of foreign capital, which has been driven by the shift away from China. Ultimately, India has established itself as an investor-friendly nation through its policies and infrastructure, which will undoubtedly contribute to its progress in the future.
What are the greatest challenges you face and why?
Operating in EM comes with many challenges that we have faced since our inception. The top three that we have encountered are policy and political changes, cultural differences, and currency risk. It is not surprising that most countries in EM are still figuring out how to grow and improve the lives of their people. However, we have been able to mitigate most of these challenges through lessons learned and having a presence in the countries we operate in.
For instance, we have team members who are fully integrated into India and Mexico, which helps us navigate through process changes, policy changes, and cultural differences. Although having a local presence doesn't eliminate these challenges, it does enable us to better understand and anticipate any changes that will impact the country and its people.
Lastly, currency risk continues to be a challenge, with no easy or inexpensive way to mitigate this risk. While we believe the U.S. Dollar is likely to weaken in the medium-term, the global economy is constantly changing, and volatility should be expected. This dynamic requires that proposed investments in EM should generate high returns for the risks. Nevertheless, we are grateful that currency fluctuations in our target markets (the Indian Rupee and Mexican Peso) are not as volatile as those who operate in frontier markets where there are many more points of failure.
What keeps you up at night?
Lately, I’ve been kept up at night thinking about the need for access to financial services in the countries where we operate. How can we scale to achieve the mission of full access for the poor, women and other excluded groups? The demand for these services continues to rise, but the supply of capital is lagging behind. This has been a concern of mine since founding Creation, but I am heartened by the growing focus on impact investing. It is inspiring to see investors increasingly prioritize both financial and social returns. We are eager to see more capital deployed alongside investors’ values and are doing our best to channel it to financial inclusion.
The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.
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Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.
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