LeapFrog Investments, which goes by the mission “Profit with Purpose”, sees numerous opportunities to invest in purpose-driven businesses in emerging Asia and Africa.
The UK-based impact investment-focused private equity firm will deploy around $200 million in Southeast Asia over the next three years, from its PE Fund III, partner Fernanda Lima told DealStreetAsia. The rest of the capital in the $743 million fund, closed in May 2019, will be deployed in other emerging Asian and African markets.
Within Southeast Asia, LeapFrog sees promise in Indonesia, and Vietnam. The firm will also look at opportunistic investments in the Philippines, Myanmar, and Cambodia. In the rest of Asia region, India will be its main interest followed by Sri Lanka and Bangladesh for opportunistic investments.
“These are large, vibrant markets with good talent, and good prospects for growth,” Lima said.
There is a huge demand for financial services in these countries because the penetration of credit, insurance, or private pensions is still low, Lima added.
Since its founding in 2007, financial services has been the sector of interest for LeapFrog followed by healthcare. In recent times, it has also started to look into the potential of technology to transform these segments. “Because we need to make these products affordable…technology has always been front and central for us, especially mobile technology,” explained Lima.
In line with this theme, on September 2, LeapFrog participated in the Series B round of Indonesian insurtech company PasarPolis, along with Xiaomi, SBI Investment, Intudo Ventures, Alpha JWC, and other existing investors, injecting $54 million. “Southeast Asia has a very mature and growing payment infrastructure that is an enabler for selling simple insurance policies that are affordable and high quality and meaningful for emerging consumers,” said Lima.
In April 2020, LeapFrog had also led a $55 million investment in India’s genetic diagnostics, research and data company MedGenome, together with Sequoia Capital and the Belgian investor Sofina.
Why Southeast Asia?
LeapFrog has been investing in Southeast Asia ever since it raised $400 million in 2014 for its PE Fund II.
The rough estimate of the number of emerging consumers in Southeast Asia, excluding Singapore, is around 390 million. These emerging consumers are living on less than $10 per day, said Lima.
LeapFrog invested in Thailand-listed general insurance Syn Mun Kong Insurance (SMK) in end-2014 and Indonesia’s financial services provider Reliance Capital Management in April 2015.
LeapFrog currently serves 26.9 million emerging consumers through its portfolio companies across Asia and Africa. This includes Reliance Capital, SMK, PasarPolis, BIMA — a mobile micro-insurance player in Ghana and India —, WorldRemit, a Singapore-based online remittance company, and the Indian medical products company Ascent Meditech.
Since 2015, the growth of impact investments in Southeast Asia has been 23%, which is among the highest in the world, according to data from Global Impact Investment Network (GIIN). Besides, about 52% of investors are increasing their exposure to the region.
Focus on returns
“Our mission is profit with a purpose. So, we have the same agreements with our limited partners as any other PE growth company and target a 25 per cent Internal Rate of Return (IRR),” said Lima.
LeapFrog claims its portfolio companies have grown, on average, at more than 30 per cent per year. The firm typically sells its portfolio companies to strategic players that want to buy a business model in a new geography.
In 2017, LeapFrog sold a major stake in BIMA as part of a $96.6m investment by Allianz X, the digital investment unit of the global insurer and asset manager Allianz Group. In February 2018, the firm sold its full stake in Petra Trust, the pension trustee in Ghana to Capital Alliance Private Equity IV Limited, a fund managed by African Capital Alliance.
It had planned to exit from Reliance Capital through an IPO in 2019 which has not fructified to date. “In general, IPO is a good option in Indonesia, India, or Vietnam. But the markets are really low now, so we’ll have to find the right moment,” Lima said.
LeapFrog, together with the Dutch development bank FMO and PartnerRe had jointly invested $45 million in Reliance Capital in April 2015. The investment is still too early to exit, and LeapFrog could hold the company for a period of five to six years, Lima said.