Finance

Development with returns

Alternatives in the current low interest rate environment

responsAbility is the world leader in development investments. Klaus Tischhauser, co-founder and CEO, explains the success of investments in developing and emerging economies.

Development investments stand for "win-win-win": Our investment clients are very happy with the returns. People in developing countries and emerging economies benefit from better infrastructure, new possibilities and additional income opportunities. We, as a company, yield a profit.

This model forms the basis of our business, which is driven by two factors: firstly, development and secondly, investment.

Development yields returns
One of the strongest arguments for development investments is development per se. Development is unstoppable and, in turn, leads to increased demand. To this end, we always focus our development investments on the broader population. The aim is to improve their everyday life - for example, by providing electricity, bank accounts or by giving farmers access to new markets.

At this stage in economic development, it is the companies with innovative business models aimed at the wider population that grow. When such companies are well managed, the success comes almost by itself. However, there is a conditio sine qua non: A prerequisite for this success is funding, and that is where we come into play. We are the partner on the ground, who understands the local business models and recognizes their potential.

Investments lead to development
Investors around the world want their capital to do more than just bring financial returns. In J.P. Morgan’s "Impact Investor Survey" in May 2015, 146 institutional investors revealed their top 3 reasons for allocating part of their capital to impact investments:

  • These investments are a part of our commitment as a responsible investor.
  • They are an efficient way to meet our impact goals.
  • We are responding to client demand.

Money can also do good in developed economies. However, the leverage is far greater in developing and emerging countries. 1,000 well-invested Swiss francs achieve significantly more in Central America than they do in Western Europe. Together with a marketable return on investment, the economic effects provide unbeatable rationale for private and institutional investors who demand more of their money.

We need to invest very selectively in order to ensure that the combination of return on investment and additional impact actually works. For this reason, we work around three core principles:

  • Focus on sectors particularly relevant to development such as finance, energy, agriculture, health and education.
  • Concentrate on business models that target broad sections of the population.
  • Invest only in well-managed and successful businesses.

So in our business, firstly there is development that leads to returns; and secondly, there is the investment that drives development. These two elements dictate the mechanics of development investments. Like cogs, they interlock and keep each other going.

Development Investment: Terminology

The term "impact investing" applies both to commercially viable activities and to activities dependent on permanent subsidies - and not just in developing countries but also in industrial nations. In the world of impact investment, “development investments” concentrate on those investments in developing and emerging countries that promise commercial success.