As part of InFiNe’s continuous commitment to sharing knowledge and best practices in the inclusive finance sector, we hosted an event on February 5th focused on the pivotal role of Luxembourg in the realm of Private Asset Impact Funds (PAIF). The event, titled “The Importance of Luxembourg within Private Asset Impact Funds: Results from Tameo’s 2024 Industry Report”, brought together industry experts to discuss the latest insights from Tameo’s annual flagship study, our partner for this event.
This report, supported by Luxembourg’s Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade and the Swiss Development Cooperation (SDC), provides a comprehensive analysis of impact investing strategies through private debt and equity funds in developing markets. It aligns closely with InFiNe’s mission to promote inclusive finance and ensure that financial services are accessible and beneficial to all segments of society.
We had the opportunity to speak with Ramkumar Narayanan, Head of Products & Services at Tameo, to delve deeper into the key findings of the report, Luxembourg’s role in impact investing, and discuss the future of impact investing in driving sustainable development.
The event highlighted the growing importance of impact investing in addressing global challenges. Through this interview, we aim to provide further insights into the trends and opportunities shaping the impact investing landscape, reinforcing our collective efforts to create a more inclusive financial future.
The 2024 PAIF Report highlights a key milestone: the market has now surpassed USD 100 billion in cumulative assets, spread across 798 impact funds and 468 fund managers. Despite challenges in macroeconomic and financial conditions, the market continues to expand, with over 100 new funds launched in 2023 alone, reinforcing a decade-long trend of increasing market activity.
Launched in 2020, the PAIF Report is Tameo’s flagship annual research initiative. Based on a six-month survey, it gathers extensive quantitative and qualitative data from impact fund managers to enhance transparency in the growing impact investing sector. The report covers key aspects such as funds’ balance sheet structures, portfolio characteristics, investment terms, risk profiles, fees and costs, financial performance, and impact performance.
The private asset impact fund market has indeed grown significantly over the past two decades, reaching $103.7 billion in assets under management. This evolution began in the early 2000s, when microfinance investment vehicles (MIVs) dominated the space, holding a cumulative AUM of $2 billion by 2006. Since then, the market has diversified, with approximately 800 funds now identified, covering a broader range of impact themes.
A key driver of this growth has been the rise of multi-sector funds, which address multiple Sustainable Development Goals (SDGs). Additionally, Climate & Energy funds have surged, now representing nearly 30% of total AUM and playing a crucial role in tackling climate change. While we don’t have exact figures for the entire market’s growth rate, our surveyed sample shows an average annual increase in total assets of 7.3% between 2019 and 2023.
A few high-income countries dominate the $103.7 billion market, with fund managers in Western Europe and North America accounting for 75%. US-based managers lead with 26%, followed by Switzerland (11%), the UK (10%), the Netherlands (9%), and Germany (6%). Sub-Saharan Africa manages 9% ($9.1 billion), while the remaining 17% is distributed across East Asia & Pacific ($6.9 billion), Latin America & Caribbean ($4.0 billion), South Asia ($3.7 billion), Middle East & North Africa ($2.6 billion), and Eastern Europe & Central Asia ($0.1 billion).
While we don’t have detailed growth patterns by region or country of management, developed markets have historically dominated PAIF management. However, we are seeing the emergence of fund managers based in developing countries, which now collectively account for 25% of total assets. While they appear to be gaining market share, we don’t have the data to confirm this (year-on-year comparisons, etc.).
The report highlights Luxembourg’s role in a dedicated chapter, showcasing the country’s contributions and initiatives to advance development finance and impact investing. It outlines historical milestones that have positioned the country as a leading jurisdiction in this field, from pioneering microfinance efforts to more recent leadership in climate and gender-smart finance. Luxembourg’s comprehensive regulatory framework also supports the development of blended finance structures, acting as a catalyst to attract capital markets towards impact funds.
Luxembourg is the first choice of domicile (fund incorporation) for most of the PAIF market, accounting for 27% of total AUMs and hosting at least 145 out of the 798 identified PAIFs. This is unsurprising, given the conducive environment Luxembourg provides for fund managers in terms of being Europe’s largest fund center, and the second worldwide. It is home to a wide and strong network of asset managers, banks, legal advisors, and service providers that facilitate fund setup and operations. Luxembourg’s robust regulatory and legal frameworks, along with competitive tax structures, provide flexibility in fund structuring and strong compliance and investor protection standards. Additionally, the country brings along the EU Passport, enabling impact funds domiciled in Luxembourg to be distributed and marketed across multiple European markets, expanding fundraising possibilities.
As mentioned above, sectors growing a lot are Climate & Energy funds, as well as multi-SDG thematic funds, i.e. those that we refer to as “multi-sector funds” in our report. In terms of innovation, we try to track the fintech and embedded finance spaces, but not extensively yet. A topic which we covered two years ago, from which we do see Africa and Latin America leading the way for such innovative business models.
Private equity has historically led the way in terms of asset classes. Today, it accounts for 55% of the market overall, both in terms of AUM and number of funds. Within financial inclusion however (i.e. microfinance fund segment), we observe more private debt funds.
Impact funds are a key gateway for investors to drive sustainable development, yet the PAIF market remains small and niche compared to broader impact investing strategies (estimated at over $1.5 trillion by the GIIN). However, the need is immense in developing markets, where issues like inequality, poverty, healthcare, and climate change require urgent funding. Private capital has a crucial role in bridging this financing gap.
Key challenges include high-risk perception among investors, illiquidity in business models, and a lack of standardized impact metrics. To address this, investor education is essential—data-backed insights help demystify risks and highlight the risk-return-impact spectrum. Blended finance models also play a role, using catalytic capital to attract private investment. These funds, which make up 25% of total AUM, often include first-loss cushions and loan guarantees to mitigate financial concerns. However, more data is needed on their performance, a gap Tameo aims to fill through its research.
For organizations looking to get involved in impact investing, it is important to recognize that while the sector is smaller compared to broader sustainable finance or global asset management, it plays a crucial role in achieving the world’s sustainable development goals. The market is highly diverse, with funds targeting various sectors, each with unique business models, geographic allocations, asset classes, and impact strategies.
Given this complexity, one advice is for investors to take the time to understand and integrate the distinct impact propositions of each fund, which add value beyond the traditional risk-return analysis. Nearly 500 specialized investment management firms are actively shaping the industry, leveraging their expertise to select, manage, and invest in impactful projects. These firms address a wide range of social and environmental goals – aligning with most, if not all, investor aspirations.
Since the market is inherently illiquid, a long-term, patient capital approach is, however, essential. This strategy not only supports sustainable growth but also enables more tangible measurement of investment outcomes, which can be more challenging in liquid, listed-market strategies.
You can find the report here.
Tameo is a trusted provider of independent data-driven solutions for the impact investing ecosystem. Based in Switzerland, Tameo specializes in impact fund data, research and reporting, impact verification and benchmarking, and advisory services that provide tailored market intelligence and support for impact management needs. Tameo empowers impact fund managers, catalytic investors and institutional investors with reliable insights and solutions to optimize their strategies and drive impact capital flows. Tameo acts as the business services manager of the Swiss Investment Fund for Emerging Markets (SIFEM).
InFiNe is the Luxembourg platform that brings together public, private and civil society actors involved in inclusive finance. The value of InFiNe lies in the wide range of expertise characterised by the diversity of its members.
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