LeapFrog hauls in $700 mln for Fund III, expands FO exposure

LeapFrog Investments closed its third fund on $700 million, beating its original target, with a plan to continue its goal of making impact investments in Africa and Asia.

The fund, which LeapFrog called the largest-ever PE fund by a dedicated impact-fund manager, has already made five investments: WorldRemit, a digital remittances company, NeoGrowth, an India-focused credit provider, Goodlife Pharmacy, which provides healthcare services in East Africa, Pyramid Pharma, a medical-products distributor across Africa, and Ascent Meditech, a maker and distributor of orthopedic products in India.

Nick Moon, a LeapFrog partner and head of investor relations, told Buyouts those investments account for about a third of the fund’s portfolio. He said LeapFrog was looking to reach “emerging consumers,” defined by the World Bank as people “in the lower-middle or low-income segments, most earning $2–$10 per day and residing in densely populated, low-cost residential areas.”

Moon said those consumers make up 90 percent of the consumer base in countries like Nigeria, India and Kenya, and LeapFrog’s goal is to provide them with healthcare products and financial services.

“Those are the people driving the very strong GDP and consumption growth that you see annually,” he said. “It’s a very high-growth market and we’re backing well-established businesses that provide those types of products and services.”

While the fund’s investors are mostly development finance institutions, insurers and pension funds, Moon pointed to one sector that has grown considerably since their previous funds: family offices.

“They don’t tend to invest particularly large checks in the grand scheme of things, but what we’ve found is that they’ve been very interested in profit-with-purpose type of strategies, whereby they can do good in terms of social output as well as meet their required returns,” Moon said.

About 15 family offices are taking part in this fund, up from about around five last time. This time, LeapFrog attracted family offices from Asia and Australia as well as the U.S. and Europe.

Moon cited several reasons for this, including a younger generation coming of age.

“There’s a lot of evidence to show that millennials and younger generations have a much stronger interest in doing good with their money as well as doing well,” he said. “I think that it will be interesting to see if this momentum continues, but certainly we’ve been very encouraged by the appetite we’ve seen in the space.”

Family offices have mostly reached out to LeapFrog on their own, which Moon said is the opposite of how it usually works. FOs are often “opaque” investors who sometimes don’t even have a website through which they can be contacted, he said.

“So for insurers, pension funds, etc., we are the ones pursuing them, pitching to them,” he said, “but what we found in family offices is they tend to research the space and look to allocate a certain amount of investment into institutional-quality impact funds.”

That research often leads FOs to LeapFrog, Moon said.

“Even though the market is rapidly developing, there’s still a relatively small handful of funds that would fit that category, that actually have authentic, robust impact outputs whilst at the same time having a very strong and demonstrable investment and financials track record,” he said.

LeapFrog started raising Fund III in 2017. The firm has invested in 26 companies, which it said reach 168 million people across 35 countries.

Action item: Check out LeapFrog’s website here.

Read a World Bank case study on Goodlife.