Emerging markets profit-with-purpose investor LeapFrog Investments has closed its third fund at $700 million.
The oversubscribed fund had an original target of $600 million. The fundraise takes LeapFrog to $1.6 billion of total commitments, according to a statement from the firm.
The fund is the largest private equity impact vehicle raised by a manager dedicated to the strategy, a signal that top-tier institutional investors consider the strategy worth backing at scale, founder and chief executive officer Andy Kuper told Private Equity International.
Prudential Financial, OPIC and IFC are leading investors in LeapFrog’s third fund, which has almost 40 institutional investors. These include global insurers such as Admiral, AXA XL, QBE and Everest Re; asset managers including Ascension Capital, Pinebridge, TIAA-Nuveen and HESTA; development finance institutions like Germany’s DEG, IFC and France’s Proparco; and foundations and corporates such as PactWorld, the Ford Foundation and the Rockefeller Foundation, Kuper said.
The vehicle’s predecessor closed on $400 million in 2014 and LeapFrog’s first fund closed at $135 million in 2010. The firm also manages a $350 million separate account for Prudential Financial Incorporated targeting investments in life insurance companies in Ghana, Kenya and Nigeria.
LeapFrog invests in healthcare and financial services companies in Asia and Africa that target emerging consumers, defined as “low-income” by the World Bank with less than $10 per day in the household. Key markets include India, Sri Lanka, Vietnam, Thailand and Indonesia in Asia and Kenya, Nigeria, Ghana and South Africa in Africa, although LeapFrog also looks opportunistically at other regions.
The firm pursues top-quartile returns for private equity: “We believe strategies like ours can achieve outsized returns and impact,” Kuper said.
He declined to comment on specific numbers, saying instead, “The presence of so many commercial investors in our recent fund should indicate that our funds could generate high returns.”
Almost 70 percent of LeapFrog’s deals are proprietary and it typically invests below $50 million in each, Kuper said. “That’s a sweet spot where companies can grow and start generating between 2x and 3x for our investors. And these companies tend to have a niche and unique positioning.”
LeapFrog’s third fund has already invested in WorldRemit, NeoGrowth, Goodlife Pharmacy, Pyramid Pharma and Ascent Meditech, according to a company release.
LeapFrog also partners with traditional private equity firms. It teamed up with Accel Partners and TCV to invest in WorldRemit, a London-headquartered company which lowers the cost of remittances for low-income migrants from 10-20 percent to between 2 and 4 percent.
The firm’s portfolio companies have been acquired by SwissRE, Prudential, Fidelity and Standard Chartered, among others.
“They like the idea of high-quality, high-ESG and growth-focused companies in this expanding impact segment,” Kuper said of the acquirers.
LeapFrog measures impact through a proprietary measurement tool called FIIRM: financial, impact, innovation and risk management. The tool pulls in data like the number of emerging consumers the company reaches, and whether services are affordable, relevant and high quality. It also uses industry-specific metrics; for instance, in insurance it looks at renewal ratios and how much of the capital pool is returned to consumers, Kuper explained.