With its long effort to drive down African sovereigns’ borrowing costs by enhancing their bonds’ liquidity having now delivered Europe’s first exchange-traded fund in the asset class, the Liquidity and Sustainability Facility and its partner L&G, the giant UK asset owner and manager, hope their new vehicle can reach a size of US$500m or even US$1bn.
“There’s the depth of liquidity there, in our view,” said Lee Collins, head of index fixed income at L&G, citing investor appetite for an “Africa-focused building block within emerging market debt exposure” due to the region’s diverse economies, strong demographics and under-representation in portfolios.
L&G already manages some US$25bn in EM debt.
The L&G LSF African Government Bond ETF, which currently has just under US$50m in assets under management is not a replacement for global EM debt exposure, he added
Rather, it serves investors seeking “to bring to life their view of increasing the allocation to Africa relative to where you see it in a traditional global exposure”.
Collins expects the fund to appeal to both institutional buyers such as pension funds and active managers, including hedge funds. It has about five initial holders.
While these are mostly institutions, they also include the UK Foreign, Commonwealth and Development Office’s Mobilist (Mobilising Institutional Capital Through Listed Product Structures) programme, strikingly. Its involvement marks the first time that the FCDO has seeded an ETF
The size of the Mobilist investment has not been disclosed.
L&G is now marketing the fund to other potential buyers. “For any product of this type, you want as many investors as possible and from diverse backgrounds,” Collins said.
The fund saw its fourth listing last week, on Borsa Italiana’s ETFplus platform. It was initially listed in Frankfurt, London and Zurich in August. The London Stock Exchange and IFR are both owned by LSEG.
The ETF packages the iBoxx LSF USD African Sovereigns Index index that LSF developed with S&P in 2024.
“We want to provide to the market a standardised product that the market knows and understands,” LSF founder and chair Vera Songwe, a former World Bank/International Finance Corporation executive, who later served as executive secretary of the United Nations’ Economic Commission for Africa, told IFR.
“At the same time, we want to send a message to African sovereigns that they need to perform to a certain standard because that helps them to get in the index and stay in the index, and to provide the credibility that the index deserves.”
LSF is also working on further listed products and indices, she added. “Watch this space.”
In addition, the facility is advising emerging economies in regions such as South-East Asia and the Gulf in the light of its experience, Songwe said. “Other geographies are watching what the LSF is doing and saying to us: ‘We need that too’.”
Former LSF chief executive David Escoffier, who left in November to focus on transition projects in Eastern Europe, noted in a LinkedIn post that the ETF was “almost four years in the making”.
It marked a first for the UK government, as well as for the financial sector and Africa, he added.
TopicsAFRICADEBTBONDSSWFECONOMY
