Convergence has awarded scoping stage support under the Blended Finance Accelerator for Fund Managers (A4FM) to Ashmore, for the design of a USD 500 million private debt strategy, aiming to mobilize institutional capital into emerging markets.
Despite growing institutional interest in emerging markets and private credit, capital allocation remains constrained by the lack of investment-grade products and regulatory capital requirements faced by institutional investors, among other reasons. While private credit in developed markets has scaled significantly, emerging market lending continues to be perceived as higher risk due to credit quality concerns, currency volatility, and limited downside protection mechanisms, limiting participation from insurers and pension funds.
Ashmore is addressing this by structuring a rating-driven blended finance solution, where concessional capital provides subordination to enable an investment-grade rating for senior tranches. This approach is designed to unlock participation from UK insurers and pension funds at scale through a diversified portfolio of impact-oriented private debt, including loan participation alongside development finance institutions (DFIs) and multilateral development banks (MDBs).
Design question and learning potential from the market: How can blended finance and credit enhancement mechanisms be structured to achieve investment-grade products that unlock institutional capital into emerging market private credit?
Ashmore’s approach responds to regulatory and capital constraints faced by institutional investors by designing a rating-driven blended finance structure that enables investment-grade exposure to emerging market private credit. By incorporating a concessional first-loss layer calibrated to rating agency requirements, the structure seeks to enhance credit quality and enable senior tranches to achieve investment-grade ratings.
The strategy leverages partnerships with MDBs and DFIs through loan participation structures, enabling diversification and access to established credit pipelines. A key component of the design is the use of rating assessment methodologies to validate the portfolio structure and determine the level of credit enhancement required to meet investor thresholds.
Through A4FM, Convergence is supporting the validation of the rating-based approach, engagement with rating agencies and institutional investors, and refinement of the capital structure with the aim of creating a replicable model for mobilizing large-scale institutional capital into emerging market private credit.
