The decision by the Singapore investment fund Temasek to establish a $500 million strategic partnership with LeapFrog Investment Group is a landmark moment for the impact investing industry. Attracting an institutional investor of that magnitude and credibility is a testament to the LeapFrog team and the burgeoning growth of the impact investing market.
The Temasek investment provides the leap in scale that investment partners supporting LeapFrog have envisioned all along. The Rockefeller Foundation, together with the John D. and Catherine T. MacArthur Foundation, saw the transformational potential of LeapFrog’s purpose-driven approach and stepped in with catalytic capital to help LeapFrog reach a meaningful size in its most recent fund, LeapFrog’s Emerging Consumer Fund III. That fund’s closing, aided in a small way by our catalytic capital, set the stage for today’s momentous announcement and demonstrates by the power of this type of capital.
LeapFrog’s approach puts a combined emphasis on social purpose and profitability. Its funds invest in businesses across Africa and Asia that serve low-income individuals and communities and change lives with their offerings and position these companies for growth and profitability. As of today, LeapFrog-backed companies provide crucial access to insurance, savings, credit, pensions, medicines, and healthcare services to over 200 million customers, most of whom subsist on less than the equivalent of $10 a day and are accessing these services for the first time. Low-income consumers in emerging markets – a four billion strong demographic – are often deprived of essential healthcare and financial services, an enormous inequity that LeapFrog companies tackle every day.
In 2019, the Foundation and the MacArthur Foundation collaborated to create the Zero Gap Fund, a unique investment partnership aimed at mobilizing at least $1 billion in outside capital over the next decade to help close the annual $2.5 trillion SDG funding gap. The Zero Gap Fund invests in innovative financing products with the potential to unlock significant private capital for charitable impact.
In the process of raising Fund III, LeapFrog reached out to the Foundation to help solve a critical bottleneck that was preventing their fund from reaching its full scale.
At the time, a commitment from the Overseas Private Investment Corporation (OPIC), now the U.S. Development Finance Corporation, came with a unique challenge. OPIC was ready to commit up to $200 million but could only do so in the form of debt instrument that would have to be repaid ahead of other investors should the fund fall short of a minimum return threshold. Because of this term, a number of the fund’s potential investors were stuck in limbo, unsure whether they could commit to the fund.
The Foundation’s Zero Gap team and LeapFrog worked on a solution to enable LeapFrog to access the OPIC funding while maintaining an equal playing field for the fund’s equity investors. Alongside AXA XL Caitlin, we created an innovative insurance product to address tail-end performance risk. In brief, Zero Gap made a $3 million commitment in the form of an insurance deductible, backstopping a broader insurance policy that benefits the fund’s equity investors. In the event Fund III falls short of OPIC’s return threshold and its seniority rights are triggered, the insurance policy kicks in, making whole Fund III’s equity investors from any lost returns due to OPIC’s seniority requirements. Zero Gap’s willingness to provide the necessary flexible capital to cover a significant portion of the insurance deductible, with LeapFrog covering the remainder to ensure alignment of interest, helped overcome the obstacle presented by OPIC’s seniority requirement.
The Zero Gap Fund’s $3 million catalytic investment unlocked an additional $270 million into LeapFrog’s Fund III for growing businesses targeting emerging consumers. After the Zero Gap Fund’s investment, LeapFrog went on to close the largest ever private equity fund by an impact fund manager, at over $700 million, demonstrating strong investor support for a strategy that combines financial returns and large-scale social impact delivery.
We congratulate the LeapFrog and Temasek teams on the recent announcement and stand ready to continue finding creative ways of mobilizing private sector capital towards impact.
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