Expanding Institutional Investment into Emerging Markets via Currency Risk Mitigation

The United States Agency for International Development (USAID) has identified and championed a pressing issue that is, at once, a major public policy imperative and a crucial concern for the international investment community: how to mobilize greater flows of private equity (PE) capital for private sector development in emerging markets (EMs) by reducing currency (FX) risk for institutional investors and fund managers?

Within the development finance community, mobilizing greater private capital for sustainable growth is the issue of our time. Bilateral international development priorities and global Sustainable Development Goals cannot be achieved though publicsector spending alone. The needs are too great and the dollars
too few.

Development actors must actively engage private-sector players to catalyze and leverage substantial resources to promote sustainable growth across the developing world. Unfortunately, FX risk – specifically, the fear that an investment return in an EM will be washed away when converted back to U.S. dollars or Euros, because the local currency loses its relative value over time – is keeping billions (perhaps trillions) of dollars on the sidelines that could otherwise be invested in EM businesses to create jobs, grow tax bases, and enhance social safety nets.