T. Rowe Price Group Inc. has secured financing from Walmart Inc. heir Lukas Walton’s impact platform for a new corporate bond fund, which will support investments in themes including water security and marine protection in emerging markets.
The goal is to bring in as much as $500 million for the new strategy, according to Samy Muaddi, head of emerging markets fixed income at the Baltimore, Maryland-based asset manager. Builders Vision, an impact platform founded by Walton, and water technology firm Xylem Inc. are among early investors who have contributed a combined $200 million, T. Rowe said in an emailed statement to Bloomberg.
T. Rowe, which is launching the strategy together with the International Finance Corporation — the private sector arm of the World Bank Group — expects investors to get annual returns as high as 400 basis point above US Treasuries, Muaddi said.
“We’re trying to catalyze a capital commitment from the private sector into blue finance that perhaps otherwise wouldn’t happen without this type of innovative partnership,” Muaddi said in an interview.
Blue bonds, first issued by the World Bank in 2018, were created in order to channel capital into projects that address threats spanning water pollution, overfishing, and the effects of climate change on oceans and rivers. Many of those challenges are most pronounced in the developing world, which has struggled to attract the financing it needs to manage such risks.
The fund launch “is a pivotal step in building a stronger blue economy — one that safeguards water resources, drives investment, and creates quality jobs across emerging markets,” Mohamed Gouled, vice president, industries at the IFC, said in an emailed statement.
T. Rowe and IFC first unveiled their Emerging Markets Blue Economy Bond Strategy in November 2023. The market for blue bonds is currently valued at about $20 billion, of which emerging-market issuers account for about 15%, according to estimates provided by T. Rowe.
There may be as much as $2.5 billion in new emerging-market corporate blue bond issuance over the next 12 to 18 months, said Matt Lawton, head of impact fixed income at T. Rowe and co-manager of the blue bond fund together with Muaddi.
Recent examples of companies in emerging markets selling blue bonds include Cia de Saneamento Básico do Estado de São Paulo, or Sabesp. Its issuance of a $500 million five-year bond was arranged by Goldman Sachs Group Inc., Itau Unibanco Holding SA and JPMorgan Chase & Co., and first priced on July 24 at a yield of 5.7%.
Attracting investors to financial products that tackle water conservation remains challenging, and “we’re not going to fill that gap without the private sector,” Muaddi said.
T. Rowe is moving ahead with its blue bond fund against a backdrop of growing hostility toward sustainable finance in the US. The asset manager had initially planned to raise over $500 million by the end of last year for its blue bonds strategy, but ended up delaying that timeline.
“We’re trying to build a capital market that doesn’t exist,” Muaddi said. “We’re trying to line up the ability to originate the bond with the client demand for the bond.”
But in the past 12 months, there’s been “an acceleration of the water theme,” and “we are very confident that blue finance is still a secular growth area,” he said. “Water has been a very unifying theme among our client base.”
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