German state-backed impact fund tackles extreme weather

This year has seen Japan suffer a record-breaking heatwave, Typhoon Mangkhut wreak havoc in Asia and wildfires run rampant in Sweden, Greece and California. With global warming and climate change estimates bleak, more extreme weather phenomena in the not-too-distant future is likely on the cards.

Private equity firm BlueOrchard is among those taking heed. The Zurich-headquartered company was selected last year to manage the InsuResilience Investment Fund, a private equity initiative created by German state bank KfW targeting minority positions in climate insurance businesses in emerging markets.

BlueOrchard is seeking $100 million for the fund and will hold an interim close in January on “substantially higher than 50 percent”, according to a source familiar with the firm. It held a first close in July last year on around $40 million, comprising $30 million from KfW and an undisclosed sum from a Swiss pension fund, the source said. The remaining commitments are expected to be predominantly European.

BlueOrchard declined to comment on fundraising when Private Equity International spoke to chief executive Patrick Scheurle in November.

The recent extreme weather influences LPs’ awareness and they see a need for a mandate that tackles this, Scheurle said. “On the investment side it also shows a lot of insurance companies, which don’t have a weather insurance offering, that this could be a great opportunity.”

KfW’s commitment serves as downside protection, meaning any losses will be taken from the bank’s commitment before any third-party capital and any money raised above the $100 million target must be accompanied by extra from KfW. First-loss provisions are not unheard of for commitments from DFIs.

The vehicle is targeting a 20 percent net internal rate of return, the source added. BlueOrchard declined to disclose return expectations.

InsuResilience Investment Fund is about to complete its fifth equity deal and is expected to make 10-15 investments in total. Its portfolio includes Pakistani agri-insurer Asia Insurance Company, West African climate insurance broker Planet Guarantee and Indian weather monitoring company Skymet Weather Services.

“The social environmental mandate that comes with the fund is to protect 100 million people,” Scheurle said.

The vehicle is accompanied by a private debt bucket targeting insurance-related microfinance companies, he added. The sub-fund is fully invested across countries including Tanzania, Peru and Mongolia and the firm is not fundraising for private debt.

BlueOrchard was founded as a UN initiative in 2001. It also manages a $1.8 billion permanent capital microfinance debt fund and runs separate mandates for DFIs.

It has been joined in targeting impact by a host of blue-chip players. Hamilton Lane is among the latest to register such a vehicle, following the likes of KKR, Bain Capital, Partners Group and TPG in attempting to raise third-party capital for the strategy.