(Bloomberg) -- A group of hedge fund veterans is helping drive a fundamental shift in how to generate financing for developing nations.
Newmarket Capital, an alternative asset manager launched six years ago by former Mariner Investment Group executives, is actively engaged in facilitating structured finance solutions for multilateral development banks, according to Molly Whitehouse, a managing director at Newmarket. The hedge fund veteran says expanding the universe of institutional investors willing to participate in such deals is a big part of the process.
"With each new transaction, the market opens further, prior structures are refined, and a clearer blueprint is established for future transactions," she said in an interview.
As MDB's lose some of the government support they've relied on for decades, they're exploring new ways to fill the gap. That's increasingly led them to turn to private capital via complex deals that are structured in ways that make them more appealing to return-seeking investors.
The shift places a greater emphasis on optimizing financial returns for MDBs, which collectively oversaw at least $1.4 trillion of development assets in 2025.
"It's key to have a decent return in what you do because private investors are not primarily interested in impact, they're primarily interested in financial returns," said Ylva Lindberg, head of strategy and communications at Norfund, the Norwegian development finance institution. "We need to be able to have a much bigger multiplier effect than we've had historically."
That's adding pressure on MDBs to continually come up with creative financial structures to entice private investors. Heike Harmgart, managing director for sub-Saharan Africa at the European Bank for Reconstruction and Development, says her "remit is to come up with innovative instruments at the project level."
Restrictions on fresh funding by the US and other Western nations — either to focus on defense spending or as part of a broader retreat from foreign aid — "has triggered a lot more innovation" among MDBs, she said. "It's a new phenomenon."
Among those keen to utilize such structures is the African Development Bank Group. The AfDB has already tapped the market for synthetic risk transfers, which allow a debt originator to transfer credit risk on loans while holding on to the underlying assets. It's now exploring other complex financial models to keep its loans flowing.
Omar Sefiani, the bank's treasurer, says it's currently looking into options around its callable capital to boost the AfDB's lending capacity without automatically adding to its debt load.
"Shareholders want MDBs to stretch every dollar of capital that they provide," he said. He's noticed that repeat issuances of novel products such as hybrid bonds often open the door to a more mainstream investor base rather than just specialized funds. The AfDB has already developed "a panoply of instruments: hybrid capital to increase risk bearing capacity, and synthetic securitization, credit insurance and guarantees, to recycle our risk," he said.
Without such solutions, development finance would struggle to make ends meet. Climate and development funding from the US and other rich nations is currently in free-fall. In May, the Green Climate Fund, a $20 billion vehicle created by the United Nations, learned that the UK was cutting its funding pledge by roughly $1 billion into 2027. The fund had already lost $4 billion in planned contributions from the US.
Even countries with stable public finances are pulling back. In the Nordic region, Finland slashed the amount it gives Finnfund, a development finance institution, to just €5 million last year from €80 million in 2020.
"It's a reality that concessional funding, or official development assistance funding, is dwindling and dwindling fast," said Kevin Kariuki, a vice president at the African Development Bank Group responsible for energy and climate. So "we are sweating our balance sheet even more."
"Fiscal space is tight, the cost of capital is high" and official development assistance is declining, said Murtaza Syed, head of ecosystems at the economics department of the Asian Infrastructure Investment Bank. Against that backdrop, MDBs "need to lean in and use our balance sheet, and use the advantages that our balance sheet has, to try to mobilize private capital and try to structure financing in a way that lowers risk and encourages the participation of the private sector."
Whitehouse at Newmarket says that many MDBs and development finance institutions "are already working to move from an originate-to-hold model toward an originate-to-share framework." In other words, after originating a loan, an MDB now transfers some of its credit risk to other investors.
"These institutions have deep regional expertise, strong underwriting standards, and unique development mandates," she said. "A meaningful part of our role has been educating sophisticated institutional LPs on the strength of MDB balance-sheet lending and the resilience of these assets."
Newmarket, which is based in Philadelphia, was among third-party investors that participated in a milestone synthetic securitization in May, designed to help the World Bank Group step up its lending capacity. Deutsche Bank AG and Banco Santander SA were among financial institutions backing that transaction, which also drew investments from AXA XL and Liberty Specialty Markets.
Newmarket has also offered derisking measures to make deals more appealing to private capital. In March, it took a first-loss exposure tied to a trade finance portfolio for which the World Bank's private sector arm is providing credit protection.
Multilateral development banks, meanwhile, are finding that private investor demand is substantial.
"We are seeing new strategies behind contributions that seek precision and scaled impact, notably more private capital mobilization," the Climate Investment Funds said, adding that it now attracts $10 in co-financing for every dollar it spends. The $14 billion pool of capital it oversees is funded by some of the world's richest nations, with projects coordinated with the World Bank and five other multilateral development banks. CIF sold its first bond, a $500 million issuance, early last year.
The African Development Bank, which in 2024 became the first multilateral development lender to sell a hybrid bond — attracting over $6 billion in orders at the peak for the $750 million issuance — is currently looking to securitize loans in a package together with debt held by the Johannesburg-based Development Bank of Southern Africa. Swedfund, a development fund owned by the government of Sweden, is looking into selling its first bonds to private investors, and the International Finance Corp. piloted its own securitization program last year.
The shift isn't so much "a change in idea" as it is "a change in scale and ambition and in operationalization," said Anna Bjerde, the World Bank's managing director of operations.
Whitehouse says Newmarket is "very positive on the direction of the market." The goal is "to help grow this space in a thoughtful and scalable way."
--With assistance from Alastair Marsh and Olivia Rudgard.
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