Emerging Markets Alternative Credit

In untapped emerging markets (EM), experienced lenders can afford to be selective – commanding a pricing/return premium over developed market (DM) deals and stipulating robust collateral protections and strong covenants. That translates into generous compensation for a comparable level of risk to DM.

With annual loss rates of below 0.5% achieved on US dollar-denominated portfolios managed since 2014, Ninety One’s EM private market strategies align with an investment-grade profile.

Ninety One began building its private credit platform in South Africa during the global financial crisis. When international capital retreated and high-quality South African borrowers were left stranded, we stepped into that gap, underwriting senior loans at attractive valuations and laying the foundation for a high-yielding credit strategy named Credit Opportunities. From those beginnings came the African Credit Opportunities strategy for international investors looking to secure uncorrelated hard currency returns.

This led to Ninety One being awarded the mandate to manage the Emerging Africa & Asia Infrastructure Fund (EAAIF – part of the Private Infrastructure Development Group), backed by a consortium of global development finance institutions, and more recently the SA Infrastructure Credit Fund and Emerging Markets Transition Debt Fund.

Our strategies accommodate a range of investor preferences. Some use blended portfolio-enhancement techniques, such as first-loss protection, to achieve investment-grade ratings and appeal to investors who want to avoid high risk-weighted assets; others adopt a public–private structure to enhance liquidity.

Some strategies allow investors to align allocations explicitly with sustainability objectives such as decarbonising high-emitting sectors.

Building on deep experience in closing deals in uncrowded African markets, Ninety One’s EM private credit investments feature many layers of protection, including low corporate leverage, lending to high-quality borrowers, and structuring deals to include robust covenants – with active loan monitoring conducted throughout the life of each loan by a dedicated team.

We have built up a proprietary network of more than 500 sourcing partners across emerging markets, which allows us to be highly selective in the opportunities we participate in.

Our extensive reach allows us to uncover deal flow that rarely appears in syndicated or brokered markets. Unlike in the crowded and increasingly binary (sponsored/non-sponsored) developed market, we work with a combination of sponsors, local entities and governments – the common denominator is an attractive risk and return profile for each deal we participate in. Furthermore, while lenders in developed markets often compete with banks, Ninety One has a long track record of partnering with them. This is a structural growth area: on the one hand, banks’ need to de-risk balance sheets is creating a demand for syndication channels; while on the other, institutional investors need scale and diversification – Ninety One works with both to create diversified pools of assets.

The need for global EM expertise and the deep origination platform necessary for building diversified portfolios has deterred broader participation in the EM private credit market, creating a barrier to entry.

With competition relatively limited, experienced investors like Ninety One have strong bargaining power; rather than having to compete on loan pricing and protections, they can stipulate lender-friendly deal terms – including robust protections – and focus on the most compelling opportunities. Given the time and effort to build up the necessary networks and expertise, we believe we have a durable competitive advantage.