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Despite the uncertainty that continues to surround the implementation of the European Union’s Solvency II regulation – the date for which was pushed back again in September – its impact is already being felt in Europe, with some insurers starting to pull back from private equity in anticipation of higher capital requirements.

But this summer, one vehicle attracted commitments from the likes of Prudential, XL Group and Achmea, not to mention reinsurers Swiss Re and PartnerRe: ‘profit with purpose’ manager LeapFrog Investments’ second fund, which held a first close in September on $204 million. 

Financial Inclusion Partners II will invest up to $60 million in financial services (particularly insurance) companies in eight countries across Africa and Asia, with a focus on the emerging consumer – a group of nearly two billion people who will see their spending power increase from $2 trillion to $5 trillion in the coming decade as they rise up into the middle class, according to LeapFrog. Previous investments include Shriram, an Indian insurance business.

“A lot of insurers and reinsurers are really on top of the long term data,” LeapFrog’s president and founder Andy Kuper tells Private Equity International. “There’s a vast emerging consumer group below the existing middle class that is going to constitute a high proportion of the world’s purchasing power, but as yet is massively untapped. Those with a lot of data see that.” 

“So then they start saying: ‘How do I access that, and how do I find specialist providers within it?’ These are not markets where you can just come up with a clever structure, then lever it up and expect a good outcome. 

You need to know the local environment, you need to be hands-on with companies and you need to have expert operational support. It’s only when investors are sure of all those things that they feel confident about returns and managing risk.”

And while some insurers may be steering clear of equity funds on principle these days, others have been quick to see the bigger picture. “If you’re an insurer or asset manager and you’re thinking about how to position yourself strategically, getting a window onto the next two billion consumers goes so far beyond [regulatory constraints]. If we’re talking about their key strategic thrust for the next 30 years, that comes way ahead of their immediate accounting issues – or at least it should.”

There’s also the fact that insurers are facing up to low or very slow growth in their home markets, he adds – 
whereas financial services are apparently growing at about 18 percent a year in LeapFrog’s target markets. LeapFrog intends to raise up to $400 million for this fund, a big increase from its previous $135 million vehicle. 

But Kuper hopes that the impressive roster of investors that came in for the first close – which also included the likes of JPMorgan, TIAA-CREF, the European Investment Bank and MetLife – will generate further momentum. 

One advantage LeapFrog should have is that some of its differentiators – like the marrying of profit and purpose, the focus on operational value-add and the emerging consumer play – are clearly in vogue with LPs at the moment. And having a proposition that has strategic appeal to insurers, despitethe regulator’s best efforts, will make its life even easier.