This op-ed was originally published on Impact Alpha.
Institutional investors could play a far greater role driving growth in emerging markets and developing economies. But many institutions, such as insurance companies, can only consider investments that have been rated “investment grade” by independent rating agencies.
An increasingly popular way to clear this hurdle is by obtaining credit ratings for blended finance vehicles — investments that combine private capital with public and philanthropic funding. Historically, rating agencies have had difficulty assessing blended finance structures, but that is changing.
Last year at Convergence, the global network for blended finance, we documented several case studies of our members who have won investment-grade ratings for their blended vehicles. Since then, we have seen signs of momentum for rating blended finance structures, including presentations by rating agencies at the London Climate Action Week in June. Both Moody’s Ratings and S&P Global Ratings published refined methodologies for rating blended finance transactions.
Credit rating agencies are refining their approaches to blended finance
Rating agencies are not permitted to advise customers on the structuring, design or modification of transactions, but by refining and articulating their methodologies, they can help issuers design structures that are likely to receive investment-grade ratings. And, increasingly, we see rating agencies working with fund and asset managers to help them understand the blended finance rating process.
In a recent paper, Michael Wilkins of the London School of Economics’ Blended Finance Lab details how existing rating methodologies are applied across different transaction types and highlights how current approaches reflect risk‑mitigating and credit-enhancing features such as guarantees within blended finance structures.
In July 2026, both Moody’s and S&P published in-depth analyses of their assessment of blended finance. Moody’s cross-sector report details how it applies the multilateral financial institutions methodology to blended finance vehicles that have several public-sector providers of junior equity because it requires less granular asset-level information than closed-end fund or structured finance approaches.
S&P’s report explores how multi-tranche funds and securitization structures can support investment-grade credit profiles for senior exposures. The report notes that hybrid structures such as blended finance vehicles incorporating features of both alternative investment funds and structured finance are becoming more prevalent, such as the utilization of rated note feeders.
Recent investment-grade ratings
There were three notable announcements of investment grade ratings for blended finance vehicles in recent months.
- In April 2026, Moody’s assigned an A3 rating with stable outlook to the Global Gender-Smart Fund S.A. Moody’s reasoned that a multi-layered structure of junior and senior shares and subordinated notes provides meaningful loss-absorption capacity, with subordinated capital required to exceed 60% of total assets. Further, Moody’s cited the fund’s broad geographic diversification, strict investment criteria and full currency hedging as factors that mitigate concerns over asset performance and weak asset credit quality.
- Also in April, AgDevCo, a specialist investor in African agriculture, announced that it has been assigned an A- credit rating with stable outlook by S&P. The rating reflects AgDevCo’s strong capitalization and liquidity coverage, underpinned with first-loss equity from the UK government.
- In June 2026, Moody’s assigned ratings of Aaa and Aa1 to the senior and mezzanine tranches of the International Finance Corporation’s second Emerging Markets Collateralized Loan Obligation transaction. This vehicle packaged 62 International Finance Corporation-originated high-quality loans across sectors and geographies into rated securities, opening access for institutional investors. Catalytic equity was provided jointly by the International Finance Corporation and the UK government’s MOBILIST program.
What could accelerate progress further?
There are three ways in which we believe the trend toward rating blended finance can be accelerated:
Catalytic capital providers should support early engagement by fund managers with credit agencies. As more donors and development finance institutions, or DFIs, make private capital mobilization a core objective, one concrete step would be to cover part of the costs associated with obtaining a credit rating.
The UK government is already supporting the Emerging Markets and Developing Economies Investor Taskforce in that regard, and other donors, such as Global Affairs Canada, are supporting fund managers with design grants, for example via the Convergence-managed Blended Finance Accelerator for Fund and Asset Managers. For fund managers, obtaining an external rating is costly and time-consuming, but the potential for private capital mobilization is significant. At the same time, each rating process helps the agencies deepen their understanding of how tranching, guarantees and other credit enhancements work in blended finance, making future ratings processes more efficient, predictable and scalable.
Second, donors and DFIs need to consider how certain clauses linked to their capital might affect a blended vehicle’s credit rating. For example, in evergreen fund structures, raters will treat a first-loss share with a 15-year maturity very differently than a perpetual first-loss share. Also, as we wrote in our case study of the Mirova Gigaton Fund, certain legal provisions — such as acceleration rights granted to DFIs in mezzanine tranches — can create uncertainty in liquidation scenarios, leading raters to treat mezzanine and super senior notes as pari passu.
Third, when fund managers win an investment-grade credit rating for a blended finance vehicle, they should publicize their success. Success stories can strengthen the case for others to follow and encourage more institutional investors to consider greater exposure in emerging markets and developing economies.
