Blended Finance

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Welcome to the Frederic Michel Verdier blog. Frederic Michel Verdier is a Funds veteran specializing in infrastructure equity investments and asset management. In today's blog, Frederic shares blended finance: what is it, what it isn’t and how to use it for maximum impact. Let's get started!

Blended finance is the term for impact investing. It's the strategy on which the impact investing industry is pinning its hopes to achieve the elusive goal of scale. But while it's popular to talk about, it's less popular to practice. It has also several different definitions, but at its core, "to blend" means to mix in concessionary capital that will reduce the difference between the perceived risk and the real risk of a deal, thereby incentivizing additional private investment.

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Blended finance is a term that's used casually but needs to be enacted specifically. Like any investment, it requires a deep understanding of finance and market context. The success of blended finance hinges on catalytic capital providers embracing their role and playing it strategically. It is both an art and a science and involves not only structuring for an individual deal effectively but also for the broader market.

The role of catalytic capital and who provides it

The role of catalytic capital is to reduce the gap between real and perceived risk of an investment for the purposes of activating additional investment dollars that otherwise wouldn't participate due to perceived market failures or barriers. Catalytic capital providers can take an outsized risk without commensurate return; their primary motivation is not financial return but leverage and scale. They focus on crowding in additional capital to develop new and unproven markets; prove the viability of new markets and new business models to other investors and multiply impact outcomes by leveraging greater volumes of capital than would otherwise be available. 

How to blend

It's important to note that simply providing more concessionary capital at an early stage does not crowd in the commercial capital. Commercial capital requires the scale and track record that later stage investments demonstrate. If an investor's goal is to demonstrate proof of concept for a new business model in a nascent sector, then early-stage investments is a better place to focusNext, it is important to be clear that catalytic capital is required to lessen the gap between real and perceived risk. To reduce the risk of non-payment so that they can get the risk-adjusted return they require. Lastly, there's much to be learned from existing blended finance vehicles. It's important for the impact investing industry to build on what works to develop the infrastructure, patterns, and structures that commercial investors need to move more capital. Find out more about Frederic Michel-Verdier's investment expertise here. 

Moving Forward

Blended finance is not a silver bullet; no such thing exists. Our challenge is to properly use the many tools and tactics, blended finance included, that we have at our disposal to maximize their utility. 


About Frederic 

Frederic Michel Verdier is a Funds veteran specializing in infrastructure equity investments and asset management. Frederic Michel-Verdier also has over 25+ years of experience in large scale Equity Investments and Asset Management of Global Infrastructure assets and financial services. Read the latest Frederic Michel- Verdier news here. Alternatively, you can connect with him on the Frederic Michel-Verdier Crunchbase page here

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1 comments

  1. Great post from Frederic Michel Verdier - I found it really interesting!

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