Funds Are Closer to Accessing Data on $1.5 Trillion of EM Debt
(Bloomberg) — Asset managers are getting closer to gaining access to data on almost $1.5 trillion of emerging market debt, potentially a key lever to increase capital investments into poorer, low-rated countries.
The Global Emerging Markets Risk Database Consortium, or GEMs, compiles over three decades of loan performance from multilateral and development banks, which can help investors better assess and price financings in 178 countries, including in nations normally outside their scope.
While the data is currently only available to 24 institutions, including the European Investment Bank and the World Bank, GEMs members are nearing a decision on making it available to third parties, according to Roman Escolano, chief risk officer at the European Investment Bank.
Developing nations need to invest $2.3 trillion a year from 2023 to 2030 to tackle climate change challenges, conflicts and the pandemic, the World Bank said in a recent report.
Luring new capital from assets managers and pensions is critical. But most investors will likely only go so far without access to historical data, which Escolano says is hard to obtain in less developed countries in, for example, Africa or Latin America.
“This next step in the evolution of GEMs will be one of the key elements in mobilization of resources in the privacy sector, in particular for the developing countries and emerging countries,” said Escolano, who is the EIB representative on the GEMs’ steering committee.
“There is no alternative to the richness of the data that we have accumulated over the years.”
GEMs members will be deciding on a new legal framework and management structure before the summer break in the northern hemisphere, said Escolano.
It will likely create a standalone legal entity, which in turn allows it to better address terms under which data may be shared with third parties, he added. If the decision is made to make the database available, timing on when would have to be worked out.
The EIB founded GEMs along with the World Bank Group’s International Finance Corp.
in 2009. About three-quarters of the countries covered by GEMs data holds speculative credit ratings, limiting the access to long-term and cheaper financing.
For context, the yield on junk bonds issued by emerging market countries is at 11.26%, according to a Bloomberg index.
That’s more than double the yield on a gauge comprising sovereign emerging market debt rated investment grade as of Tuesday.
The opening of GEMs “can help accelerate the flow of capital and reduce the gap between real and perceived risk for institutional investors,” according to a list of recommendations to policy markers by institutions including the Investor Leadership Network, which was formed by a group of asset managers including Caisse de Depot et Placement du Quebec.
Historic losses of multilateral development banks “are materially lower than those estimated by ratings agencies,” according to the Investor Leadership Network.
“There is increasing understanding between stakeholders – including governments and investors – on what is needed to mobilize the financing needed,” said Marc-André Blanchard, executive vice president at CDPQ, who oversees the pension fund’s international operations, including in emerging markets, and serves as global head of sustainability.
GEMs data can help to “ensure that risk is better understood and priced,” said Blanchard, a former Canadian diplomat.
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