Co-financing alongside multilateral development banks (MDBs) and development finance institutions (DFIs) is not only necessary to help meet the financing needs of emerging markets and developing economies (EMDEs), it is smart business. ILX demonstrates the critical importance of transparency in financial and impact data for mobilising private investors into EMDEs.
ILX Fund: Development finance asset class proves stable and strong
Abstract
The recent (2024) opening of the Global Emerging Markets Risk Database (GEMs) demonstrates that the development finance asset class – loans that multilateral development banks (MDBs) and development finance institutions (DFIs) make to sub-sovereign and the private sector in emerging markets and developing economies (EMDEs) – has had a very stable and strong credit performance since 1998, based on relatively low defaults and high recovery rates. Co-financing alongside MDBs and DFIs is not only necessary to help meet the financing needs of EMDEs, it is smart business. ILX demonstrates the critical importance of transparency in financial and impact data for mobilising private investors into EMDEs.
The ILX Fund is a private credit fund managed by ILX Management B.V, and Amsterdam-based asset manager specialising in sustainable development co-investment strategies in emerging markets. ILX has raised two funds that co-invest alongside MDBs and DFIs: The first, ILX Fund I, was launched in 2022 with USD 1.05 billion in commitment, later expanded to USD 1.5 billion from Dutch pension funds. The second fund, ILX Fund II, was launched in 2024, raising USD 185 million from Danish pension funds, bringing the total assets under management to USD 1.7 billion.
ILX invests in syndicated loans originated by MDBs/DFIs (e.g. the EBRD, IFC, AfDB), and co-invests pari passu with these institutions in private sector projects across emerging markets. MDBs and DFIs thus enable ILX to attract institutional investors (e.g. pension funds) by offering investment opportunities in emerging markets and a proven track record of market-rate returns with development impact. Data from the GEMs Database helped to attract institutional investors to ILX Fund I, indicating that the development finance asset class was, in fact, attractive to institutional investors based on low defaults, high recovery rates, and high and stable earnings.
By leveraging MDBs and DFIs’ infrastructure, sourcing, and structuring capacity, ILX bridges the gap between institutional capital and development projects in emerging markets, delivering dual returns - financial and developmental – without relying on concessional finance to lower the investment risk for commercial investors. ILX confirms that loans originated by MDBs and DFIs is a viable asset class; the default rate is low, while the risk-adjusted returns are attractive.
The ILX model is designed to be scaled, both in volume and in geographical reach, and scaling is part of its long-term vision. MDBs and DFIs have significant existing portfolios as well as pipelines of vetted, impactful projects. The model is tailored to meet the needs of pension funds and long-term institutional investors, providing investment grade structures, and measurable impact aligned with the SDGs. ILX can be replicated by other asset managers globally, with more partnerships forged with MDBs and DFIs, and broader investor participation. ILX has demonstrated the critical importance of transparency in financial and impact data through access to the GEMs Database. Scaling up will require more data transparency and further harmonised and standardised reporting.
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