OPIC's $200m impact investment in LeapFrog

In what could be a transformational development in the world of impact investing, the Overseas Private Investment Corporation (OPIC) announced in December a commitment of up to $200 million to LeapFrog Investments.

Considering OPIC has committed an average of $66 million to its roster of 62 private equity funds in emerging markets since 1987, this marked not only OPIC’s single biggest commitment to a fund, but also the largest commitment ever to an impact fund.

“It is certainly a significant vote of confidence in LeapFrog and the maturation of private equity impact investing,” says a US fund formation lawyer.

“LeapFrog’s mission is quite well-aligned with OPIC’s mission and the mission of many other DFIs [development finance institutions], so it is not surprising that OPIC wants to grow its relationship with the firm. The game-changer is the scale this creates for LeapFrog.”

LeapFrog seeks to maximise both social and financial returns from investments in Africa and Asia, and co-founder Jim Roth says that the $200 million will go towards its Fund III, which is expected to target $800 million and fundraise throughout 2016. The latest commitment raises LeapFrog’s total received capital above $1 billion, making the firm the first billion-dollar fund aimed at equity impact investing.

“It’s been a real coming of age for impact investing,” says Roth. “One of the things LeapFrog is showing is that you don’t have to trade profits for purpose; we’ve shown that very consistently now over the last eight years.”

According to PEI Research & Analytics, the 2009 LeapFrog Financial Inclusion Fund closed on $135 million and its successor, Financial Inclusion Fund II, on $400 million in 2013.

The latter is 75 percent invested, Roth told Private Equity International in December. The lawyer says that “LeapFrog and other double-bottom-line sponsors are proving to investors that they may be able to have their cake and eat it; they don’t need to choose between investment returns and positive social impacts”, adding that just a few years ago there were a number of unproven teams with “transformational ideas but short, or non-existent track records”.

The lawyer says there is a notable increase in interest among US pension funds and other institutional investors and expects that to grow as the market matures.

Patricia Dineen, the Emerging Markets Private Equity Association’s head of impact investing, describes the work of LeapFrog as “truly remarkable” and OPIC’s commitment promotes the professionalism and credibility of the impact investing industry.

Experts do not seem to think that there could be a negative effect on smaller players in the market. While the private equity industry as a whole has experienced consolidation after the financial crisis, impact investing is still in its nascent stages.

“Rather than crowd out smaller impact sponsors, it is likely that this investment helps to shine a spotlight on this portion of the market, and may drive even greater interest among investors,” the lawyer says.