"Devising tailor-made vehicles" Corinne Feypel-Molitor, Institutional Client Services, Banque de Luxembourg

How is the perception of social finance changing?

Social finance incorporates a range of investment techniques with a social or environmental outlook. It now includes all asset classes. As social finance has developed, asset managers have been addressing it from an increasingly professional stance. The controls are stricter and the annual reports are more reliable... This professionalisation is extremely beneficial to the supported projects which are moving away from just appealing for donations and starting to engage in genuine financial discussion. For their part, investors also get away from the idea of being providers of funds and can really engage in the idea of a serious investment in a project with social impact.

 

What are Luxembourg’s specific advantages for social finance?

Apart from its unparalleled financial commitment to development (0.8% of Luxembourg’s GDP), Luxembourg has specific fund structures that are readily adaptable to social finance issues. In 2004, Luxembourg created a flexible and attractive vehicle, the SICAR (société d'investissement à capital risque), which promotes venture capital investment. Numerous vehicles of this type have been created to invest in social and environmental projects. In 2007, the SIF (specialised investment fund) was created. Reserved for informed investors, this enables subscribers to invest as they wish in a variety of projects, grouped within subfunds of varying degrees of risk. For example, we have created a SIF for the Swiss asset management company, Alpha-Mundi, one sub-fund of which offers direct loans to microfinance institutions (MFI), while another invests in a diversified portfolio of SRI funds. The third subfund is dedicated to direct investment (venture capital) in the capital of an MFI.

 

What is your approach to these regulatory innovations?

Like SICARs, SIFs offer opportunities that we have grasped very quickly, with a dedicated team of five people. Our intention is to support project initiators throughout the fund’s set-up period. This spirit of partnership is vital for the success of these projects as it is not unusual for projects to come up against a host of difficulties such as exotic currencies or a lack of payment circuits to the countries receiving the funds. All this demands huge conviction to do all we can to devise appropriate tailor-made investment vehicles, but we are convinced of their relevance and their future prospects.

 

How can a foundation benefit from this type of vehicle?

First by investing its assets in a SIF or SICAR dedicated to social projects. Thereafter, a foundation that wants to finance a project could think about creating a fund with other lenders. These vehicles are regulated as investment funds by the Luxembourg control authority. They make it possible to work in the confident knowledge that all aspects of transparency or accountability are managed, and that the financial flows and return on investment are in line with predefined expectations.

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