MICRO AND SME FINANCE LEADERS*

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1 MICRO AND SME FINANCE LEADERS* Summary Market Review Third consecutive quarterly increase of federal funds rate Macron s election victory removes major short-term risk for the Eurozone Chinese growth figures for Q2 continue to impress Fund Activity Fund Performance Key Figures Outlook Equity Portfolio Focus USD 28.4 million disbursed during the reporting quarter investments in 25 different institutions across 24 countries highest investment volume in South America, followed by Central America and Middle East & North Africa Acceleration in placement activity with drop in cash levels expected fund volume exceeds USD 300 million for the first time creation of provisions in debt portfolio decreases Fund volume (USD) 302'508'697 Net performance 2Q (class I, USD, %) 1.07 Net performance 12 months (class I, USD, %) 2.03 Microentrepreneurs reached 165'372 Fed expected to continue hiking US interest rates, while ECB likely to remain accommodative for some time longer lower oil prices continue to put pressure on oil exporting markets, while net energy importers will continue to benefit Fund s exposure in Asia expected to increase Two private equity investments completed during reporting quarter valuation adjustments detracted from Fund s quarterly performance overall positive performance of equity portfolio expected in H2 private equity investments in Sri Lanka and Uganda expected to be executed Important Trends for Development Investments Interview with Rochus Mommartz, CEO responsability Investments AG *For qualified and professional investors only

2 Market Review Third consecutive quarterly increase of federal funds rate Macron s election victory removes major short-term risk for the Eurozone Chinese growth figures for Q2 continue to impress While the structural low-yield environment essentially continues, the US Federal Reserve (Fed) in June carried out its widely expected third consecutive quarterly rate hike, raising the federal funds rate by 0.25% to a target range of 1% to 1.25%. This happened on the back of optimism and hopes for reflation in the US economy due to normalising growth rates. However, this latest rate hike did not lead to an equivalent, broadly based increase in the dollar cost of financing. At 1.6% at the end of the second quarter of 2017, the two-year swap rate in the US, for example, was unchanged from the end of the previous quarter, as the rate hike had already been priced in. The projected path of US interest rates is likely to steepen as the actions and policies of the Trump government impact yields at the long end of the US yield curve through higher inflation risk and a higher term premium while the Fed continues its gradual tightening of monetary policy. A further increase in US rates, all other things being equal, would cause interest rate differentials between the US and the investee countries to narrow and thus reduce the cost of hedging local currency investments against the US dollar. However, for all fund classes not denominated in US dollar this would imply a further increase in the cost of hedging the Fund s US dollar exposure. Turmoil surrounding the administration of US president Donald Trump the dismissal of the director of the FBI, investigations into links between the Trump campaign and the Russian government, failure to pass healthcare reform have increased uncertainty and sapped the government of the political capital required to enact legislation. From an economic standpoint, it thus seems increasingly unlikely that Trump will be able to implement the vast infrastructure spending programme promised in his campaign. Trump s first overseas trip received mixed reviews amid attempts to brand his governing philosophy America first. In Europe, he rattled allies by declining to endorse the NATO alliance s bedrock common defence pledge and rejecting the Paris climate accord. Such behaviour underlines the volatility of the geopolitical landscape under the Trump government, with uncertainty spreading to consumer and business sentiment. The Fund will need to closely monitor potential effects on both developed and developing markets. After the European Central Bank s (ECB) pledge of potentially unlimited bond buying had marked the turning point in the EU sovereign debt crisis, ECB President Mario Draghi has once again set the tone, this time by indicating that the central bank could start tapering its asset purchases. However, the ECB is unlikely to put its balance sheet on autopilot, with assets rolling off gradually, as it has to balance this process with low inflation fluctuating around 1% compared to the 2% target. The result of the French election, with centrist Emmanuel Macron s victory over right-wing populist Marine Le Pen (an advocate of France s exit from the Eurozone) has removed a major short-term risk for the Eurozone. The pace of economic restructuring in China continues to dominate discussions surrounding emerging markets. Instructions to banks to reduce lending to inefficient state-owned enterprises, as well as aggressive moves to regulate the shadow banking industry, are expected to dampen growth in the second half of the year. However, growth figures for Q2 continue to impress at 6.9%, suggesting the possibility of a first increase in year-on-year growth since Should growth slow into next year, this could have repercussions for countries that heavily depend on China as a key export market, and impact global growth. Commodity prices, notably energy prices, play a significant role in many developing economies. The second quarter of 2017 proved to be an uncertain time for commodity prices and amid oversupply concerns for energy prices in particular, as the key takeaway of the last months was buy anything apart from commodities. The Reserve Bank of India (RBI) reiterated its cautious view on inflation at its April 2017 policy review meeting and, as expected, kept the key policy rate unchanged. At the same time, the RBI narrowed the liquidity adjustment facility (LAF) corridor to contain the fall in short-term yields owing to high interbank liquidity. However, the bank did not announce any specific move to reduce this liquidity. India is a key country for our Fund although we temporarily postponed several disbursements over the last quarter as we sought to gain a better understanding of the impact of demonetisation at an institutional level. With the impact apparently quite limited, India will be our main focus country for the second half of Cambodia continued to experience strong credit growth. However, to avoid the risk of overheating in this country, the Fund has aimed to keep its exposure at recent levels. Elsewhere, we are continuing to monitor the economic situation in the Caucasus and Central Asia region closely as growth in Russia (a key driver for the region) has improved somewhat. We have observed some discrepancies between the region s countries. The Fund has been focusing its investments on Armenia and Georgia, with Azerbaijan in a restructuring phase and the Fund s strategy in Tajikistan limited to moderate investments in a small number of strong institutions. With Russia s economy beginning to recover, the country is again being considered for investments. After slipping into a deep recession amid plunging oil prices, Russia had been excluded from new investments since early responsability Micro and SME Finance Leaders Quarterly Report 2

3 In Eastern Europe, the market for financing has been very competitive, with some investors moving funds there from the Caucasus region. Spreads have been decreasing and it has been difficult to find demand at a reasonable risk-return profile. Fund Activity USD 28.4 million disbursed during the reporting quarter investments in 25 different institutions across 24 countries highest investment volume in South America, followed by Central America and Middle East & North Africa With total disbursements amounting to around USD 28.4 million in the reporting quarter, the investment volume increased by about USD 15 million from the first quarter of 2017 but decreased by about USD 5 million from the second quarter of During the reporting period, the Fund invested in 25 different institutions in a total of 24 countries. On a regional level, USD 9.7 million was invested in South America, followed by USD 6 million in Central America, USD 5.1 million in the Middle East & North Africa and USD 2.3 million in Eastern Europe. Less than USD 2 million each were disbursed in the other regions due to either increased uncertainty at a country level or difficulty in aligning the Fund s risk-return profile with counterparties pricing demand. In the second quarter of 2017, the Fund made a disbursement in the Sub-Saharan Africa region for the first time this year, providing financing to a strong bank focused on SME clients in Burkina Faso. Over the reporting quarter, the Fund provided financing to 10 new microfinance institutions primarily in South America and Asia-Pacific. The largest disbursement during the quarter was a transaction of USD 6 million with a financial institution in South America. Local currency investments accounted for 11% of the Fund s investment volume during the second quarter of The Fund s strategy of generally hedging positions in local currencies against the fund currency remains unchanged. Debt instruments with a floating rate coupon accounted for 33% of the Fund s investment volume during the quarter under review. The Fund s allocation to subordinated debt decreased from 8.3% at the end of the previous quarter to 7.7% as of the end of the second quarter of 2017 as no new such deals were carried out during the reporting quarter. In the private equity area, an investment of around USD 2.2 million in a regional bank in Russia as well as a follow-on investment of around USD 1.8 million in a microfinance institution in Kazakhstan were completed during the second quarter of For further information on the private equity investments, please refer to the Equity Portfolio section of this report. Fund Performance Acceleration in placement activity with drop in cash levels expected fund volume exceeds USD 300 million for the first time creation of provisions in debt portfolio decreases The Fund's cash position increased to 16.7% as of the end of the second quarter of 2017 compared to 14.5% at the end of the previous quarter. The Fund s cash position remained stable compared to the second quarter of At a current level of 16.7%, the cash position continues to dilute the Fund s total income while also reducing its risk. The elevated cash level remained due to the Fund s lower placement capacity amid slower growth across certain regions as well as an active riskoff strategy. Some regions did not meet our investment criteria in terms of risk-return patterns and were therefore excluded from new investments. However, 2017 has already seen an acceleration in activity, a trend that we expect to continue over the rest of the year and beyond. This is in part driven by improving fundamentals. Growth has picked up overall, with underperforming markets stabilising or rebounding. In addition, responsability has made several changes to the Fund s investment strategy that we believe are starting to bear fruit. These include a higher allocation to SME finance institutions, larger ticket sizes and greater flexibility in terms of other asset classes (e.g. sub-debt). As a result, responsability expects the acceleration in placements to continue over the next 12 months, with cash levels dropping accordingly. The overall fund volume increased to around USD million as of the end of the second quarter of 2017 from USD million at the end of the previous quarter. The US dollar net return of the I (USD) share class amounted to +1.07% for the reporting quarter compared to -0.18% in the previous quarter and +0.82% in the second quarter of The returns of the S (CHF) and S (EUR) share classes were +0.51% and +0.59%, respectively. Hedging costs continue to hamper the performance of the CHF and EUR share classes as the relevant interest rate differentials are increasing. The creation of provisions in the debt portfolio decreased from the previous quarter, with the negative impact of provisions on the Fund s return amounting to -0.14% in the reporting quarter. This is a reduction from the negative performance impact of provisions during the previous quarter (negative impact on the Fund s return of -0.27% in Q1 2017). The provisions created during the reporting quarter were mainly related to debtfinanced investees in Sub-Saharan Africa. At -0.12% overall, valuation adjustments to positions in the private equity portfolio detracted from the Fund s quarterly performance. For further information on the Fund s private equity investments, please refer to the Equity Portfolio section of this report. responsability Micro and SME Finance Leaders Quarterly Report 3

4 Key Figures as of 2Q 2017 Fund data/net performance (1) Class I Class S Class S Class I- Class I- Class I- Class I- Class I- (USD) (CHF) (EUR) II (USD) II (EUR) II (CHF) II (NOK) III (NOK) Quarterly return (%) n/a 0.88 n/a Return YTD 2017 (%) n/a 0.61 n/a Since inception (%) (2) n/a 0.61 n/a ø Return (p.a.) since inception (%) n/a 1.47 n/a 1 year n/a 0.16 n/a n/a n/a 3 years n/a n/a n/a n/a n/a 5 years n/a n/a n/a n/a n/a Strongest month since inception (%) n/a 0.44 n/a Weakest month since inception (%) n/a n/a No. of months with positive performance n/a 4 n/a No. of months with negative performance n/a 1 n/a Fonds volume (USD) 302'508'697 Return volatility (USD, %) (3) 1.21 Sharpe ratio (USD) (4) 2.11 (1) Past performance is not a guarantee or indicator of current or future performance. This performance data is calculated net of all fees and commissions but it does not take into account the commissions and costs incurred on the issue and redemption of units. (2) August 2010 (class I (USD) and class S (CHF); October 2010 (class S (EUR)); (3) annualized since inception; (4) calculated by taking into account the annualized monthly return volatility since inception and the average 6mth LIBOR USD rate (risk free) Track record of (closed) class Q (5) Class Q (USD) Selected assets correlation responsability Micro and SME ( ) Finance Leaders (USD) Net return since inception (%) 32.2 MSCI World Index ø Return (p.a.) since inception (%) 4.3 6mths USD Libor No. of months with positive performance 71 MSCI FM Frontier Markets (USD) No. of months with negative performance 9.0 (5) Class Q was launched in November 2006 and closed in July 2013 Largest country exposure in % NAV Geographical allocation in % of investments India 7.8 Asia Pacific 21.5 Costa Rica 5.8 South America 21.0 Georgia 5.3 Central Asia 16.3 Ecuador 5.1 Central America 14.4 Cambodia 4.8 Sub-Saharan Africa 9.8 Armenia 4.4 Eastern Europe 7.2 Peru 3.3 Middle East & North Africa 7.1 Brazil 3.1 Other 2.7 Panama 2.7 Sri Lanka 2.7 Total no. of countries 73 Other 7.8 (6) Generally positions hedged against fund currency Currency allocation (6) in % of investments Asset allocation in % NAV USD 70.3 Fixed income 70.8 EUR 14.1 Cash (7) 16.7 PEN 2.3 Equity 12.4 KZT 2.0 (7) Cash: Cash current accounts and money market 16.4% THB 1.9 Cash equivalent: Value of hedging contracts, collat- 0.4% ZAR 1.7 eral cash, accrued interest investments, other assets and liabilities Social performance indicators 2Q Q 2016 No. of institutions No. of microentrepreneurs reached 165' '123 Average loan size (USD) 2'529 1'543 Rural / urban clients (%) 49/51 68/32 Female / male (%) 83/17 83/17 responsability Micro and SME Finance Leaders Quarterly Report 4

5 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Volume in millions USD Development of Overall Portfolio Performance (net) (1) and fund volume Fund volume NAV USD NAV EUR NAV CHF NAV Q-class (closed) (1) Past performance is not a guarantee or indicator of current or future performance. This performance data is calculated net of all fees and commissions but it does not take into account the commissions and costs incurred on the issue and redemption of units. Maturity breakdown as of 2Q % 25% 20% 15% 10% 5% 0% < 6 months 6-12 months months months months months > 36 months Average time to maturity: 24.2 months responsability Micro and SME Finance Leaders Quarterly Report 5

6 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Development of country allocation 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Development of geographical allocation 100% 80% 60% 40% 20% 0% 2Q Q 2017 Asia Pacific Central Asia Middle East & North Africa South America Central America Eastern Europe Other Sub-Saharan Africa Development of asset classes 100% Development of currency allocation 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% Fixed income Equity Cash & cash equivalent¹ USD EUR PEN THB NGN BOB Others (1) Cash: Cash current accounts and money market 16.4% Cash equivalent: Value of hedging contracts, collateral cash, accrued interest investments, other assets and liabilities 0.4% Further portfolio data will be sent to interested investors on request. Please with your name and the name of the fund you are interested in. responsability Micro and SME Finance Leaders Quarterly Report 6

7 Outlook Fed expected to continue hiking US interest rates, while ECB likely to remain accommodative for some time longer lower oil prices continue to put pressure on oil exporting markets, while net energy importers will continue to benefit Fund s exposure in Asia expected to increase Taken together, the global macro story remains broadly unchanged. The world economy is expected to accelerate moderately, inducing major central banks to withdraw some monetary stimulus, but only very gradually. As a result, benchmark yields are expected to rise moderately. Among the major central banks, attention will be focused on the US Federal Reserve (Fed) and the European Central Bank (ECB). In addition to continuing its rate hikes, the Fed is likely to start reducing its balance sheet by gradually phasing out reinvestments of principals from maturing securities. It remains questionable, though, whether the signalled pace of rate hikes (another increase in 2017 followed by three 0.25% hikes in both 2018 and 2019) paired with balance sheet reductions is consistent with reaching the inflation target. Even if the Fed ultimately opts for more moderate tightening, the direction has been set. Meanwhile, the ECB continues to signal that its policy rate will remain at the current low level for an extended period of time. Given the muted inflation outlook, this claim seems credible, and markets have only priced in a 0.25% hike in two years. The focus, however, will be on the ECB s asset purchase programme, which, according to the current guidance, will run at the current pace at least until year-end. At that point, asset purchases will not come to a halt abruptly. Instead, the ECB is likely to phase out its asset purchases over several quarters. Although this means that the ECB s policy is likely to remain accommodative for some time, markets have focused on the forthcoming withdrawal of monetary stimulus and have started pricing in a stronger currency and higher yields. However, given the risk of another delay in reaching its inflation target, the ECB will probably tolerate only a limited degree of tightening in financial conditions. As a result, the upside for both the euro and yields in the Eurozone should also be limited, at least in the short run. Investors are currently stuck in neutrality land, with some investor surveys suggesting almost record-high levels of neutrality. Meanwhile, another important election in Europe the German vote in September provides for a certain amount of political uncertainty although the populist threat is much less evident here than in previous European elections. In addition, the two-year Brexit negotiating clock is fast ticking away. However, the impact of Brexit is not expected to have a significant influence on the Fund s investee countries. Oil prices, which softened meaningfully in June, seem unlikely to trend much lower from current levels, as such levels would slow supply growth meaningfully. Yet the upside potential is also limited, with prices above USD 55 per barrel potentially triggering a sizable increase in supply by US shale drillers. This will continue to put pressure on several oil exporting markets in which the Fund is invested, notably Ecuador, Nigeria, Azerbaijan and Kazakhstan. However, many of these markets have responded with significant economic and fiscal reforms. In addition, the Fund has reduced the relative weight of such countries in its portfolio over the past few years. It is also worth noting that many other countries in our portfolio that are net energy importers will continue to benefit from low prices, notably Kenya, India, Georgia and Cambodia. We currently see good opportunities to increase our exposure in Asia until the end of the year and beyond. With the monsoon proving reasonable, and the effects of demonetisation slowly fading, the economic outlook for India has become even more positive. Credit growth has also moderated, while inflation has stabilised. Consequently, significant disbursements are planned for the third quarter of the year. In addition, the narrowing of interest rate differentials between India and the US has reduced hedging costs for deals in Indian rupee, which facilitates access to the market and increases our ability to compete with local funding sources. Elsewhere in the region, we had also expected to increase exposure to Sri Lanka in the coming months. However, the announcement of a potential introduction of a withholding tax for foreign investors, due to be presented to parliament for a vote in September/October 2017, has created some uncertainty regarding our investment pipeline in the country. In Mongolia, the outlook for the banking sector has improved in the second quarter of 2017 from negative to stable due to events at a sovereign level. An International Monetary Fund (IMF) agreement was put in place to ensure liquidity and enhance support to systemic entities, improving the institutional framework and the overall economic outlook. We see some potential to increase the Fund s exposure to the country in the future. In Sub-Saharan Africa, the broader issues affecting several countries remain political uncertainty and dependence on commodity prices. The Kenyan election scheduled for 8 August is a good example of the former category. However, we are currently not planning to increase our exposure to Kenya or its immediate neighbours, but to focus more on West Africa. For example, we are planning disbursements in euro and the local currency, the CFA franc (XOF), in Senegal, Ivory Coast and Cameroon. Latin America is a region characterised by a mixture of opportunity and risk. In Costa Rica, the economy is projected to continue expanding at a robust pace, owing to higher external demand and increasing public investment. The Fund continues to select investments by prudently focusing on three key factors of diversification: at an institutional responsability Micro and SME Finance Leaders Quarterly Report 7

8 level, to limit the impact of potential provisions related to individual institutions; on a country level, to ensure the Fund is adequately protected from issues relating to individual economies as well as sudden regulatory changes; and at a regional level, to protect against broader economic, political or even climatic events that can negatively affect an entire region. Ultimately, the key goal is to deliver the best return for an appropriate level of risk, and the best possible value to our investors. responsability Micro and SME Finance Leaders Quarterly Report 8

9 Equity Portfolio Two private equity investments completed during reporting quarter valuation adjustments detracted from Fund s quarterly performance overall positive performance of equity portfolio expected in H2 private equity investments in Sri Lanka and Uganda expected to be executed Portfolio activity During the second quarter of 2017, the Fund completed an investment of around USD 2.2 million in a regional bank in Russia with a significant focus on the SME and agriculture sectors as well as a follow-on investment of around USD 1.8 million in a microfinance institution in Kazakhstan at attractive terms. Portfolio performance At -0.12% overall, valuation adjustments to positions in the equity portfolio detracted from the Fund s quarterly performance. The negative performance impact was due, in particular, to revaluations of an indirect holding in a private equity fund investing in the Balkan region, a position in a pan-african leasing group as well as an investment in a holding company managing banks in Eastern Europe and Latin America. The lower valuation of the indirect private equity fund holding focusing on the Balkans was caused by an offer made for the entire fund holdings to be purchased at a price slightly below the price assumption factored into our previous portfolio valuation. The lower valuation of the pan-african leasing group was due to the investee s reduced book value, which was caused by a worsening performance of several of its subsidiaries. The value of the holding company managing banks in Eastern Europe and Latin America was negatively affected by the decreased market price of its listed shares, which is one of the contributors to our valuation of this holding. However, this negative performance impact of the revaluation of the holding company was more than compensated by a positive FX effect due to the strengthening of the euro (the currency in which the shares of the investee are denominated and traded) versus the fund currency US dollar. A significant uplift in valuation of one investee company in Kazakhstan which occurred after a capital increase in which the Fund participated as well as stable performance of most of the remaining investees in the equity portfolio could only partially mitigate the overall negative performance impact of valuation adjustments in the portfolio. Key Figures 2Q 2017 Class I (USD) Current fair value equity portfolio Equity contribution 2Q (%) Allocation equity portfolio in % of fonds volume 12.4 Equity contribution YTD (%) No. of investments 12 Geographical allocation Type of investment 25.5% South America 9.7% Asia Pacific 20.8% Eastern Europe 29.2% Central Asia 5.6% Sub-Saharan Africa 2.6% Central America 6.6% Other 76.5% direct Equity 23.5% indirect (via FoF) Outlook The trading volumes of the holding company which had its shares listed on the stock exchange in December 2016 remain thin, which is reflected in continued elevated volatility of the market price of its shares as well as of our valuation of the position in the investee. In the long term, we expect the market price of the shares to stabilise at about the current price level once their trading volume increases. The remaining portfolio companies show stable growth and profitability in line with the business plans taken into account for the valuations and we expect the overall portfolio to perform positively in the second half of the year. responsability Micro and SME Finance Leaders Quarterly Report 9

10 In the second half of 2017, we expect to execute an investment in one of Sri Lanka s leading non-bank micro-finance and leasing institutions as well as in a bank focused on SME clients in Uganda. This will bring the Fund s private equity allocation closer to target. As a result, no further larger investments are expected for the remainder of the year. The Fund has several additional transactions in its mid- to longer-term pipeline. However, their implementation will also depend on the future development of the Fund s net assets. responsability Micro and SME Finance Leaders Quarterly Report 10

11 Focus Important Trends for Development Investments Interview with Rochus Mommartz, CEO responsability Investments AG Awareness about the need and opportunities for investment Private sector investors are discovering opportunities to invest with purpose and without sacrificing returns for impact. And that is still a relatively new phenomenon. Awareness about such opportunities is only just emerging and it is certainly to soon to draw any conclusions about the relevance of this process. However, the signs seem to indicate that even institutional investors see development investments as being more than just a fancy marketing trend. The forces at work are complex, but the trends all point in the same direction: more funding for development investments. The public sector, which started to invest in developing countries decades ago, is pushing the agenda via the Sustainable Development Goals (SDG), as it is becoming increasingly apparent that without the private sector it will be impossible to overcome the imbalances within a reasonable timeframe. The rapidly growing number of ultra high net worth individuals 2016 saw a total of 1,810 billionaires worldwide and there have never been so many wealthy young people is often characterised by a youthful new spirit of giving back. This trend is seeing many prosperous individuals focusing on investments that have a positive impact and who want to help the world to advance through investment. These young wealthy people are often entrepreneurs who believe in the power of investments to instigate change. Business and entrepreneurship is their medium for change. Added to this are the large institutional investors who are having a tough time achieving their target returns in the current low-interest environment. Some are also facing pressure from their constituents regarding their investment ethics or are simply taken by the charm of the longer-term opportunity. Increased integration of economic, social and environmental (ESG) criteria is a clear sign of this, as is the start of SDG-related portfolio allocation. Post-crisis trend towards more patient capital Completely independently from development investments, there is a clear industry trend towards more patient capital. Asset managers have been taking a more long-term approach since the crash. In 2015, long-term vehicles provided more financing to start-ups in the UK than the traditional venture capital structures. But more patient forms of investment are also in vogue with the largest asset managers; this trend is very supportive of development investments because it is helping to mainstream the approach, which often needs longer-term investment horizons. In terms of figures, this approach entails an investment horizon of 15 to 20 years instead of the usual private equity targets with a planned exit within 3 to 5 years. Average annual net returns of 12% are accepted, while in the past this usually had to be around 20% or more. While it s still early days, we see it as a signal that points towards the emergence of new strategies which align well with the spirit of development investments. Success implies a lot of change Successful developing countries have rapidly growing economies. For development investors this is a sign of confirmation that represents both a challenge and an opportunity. It is a challenge because success always implies change. Take microfinance, for example. Once a cluster of microfinance providers starts to enjoy success in a specific regional market, their original business approach becomes less relevant, as their clients are developing from typical microentrepreneurs into small business owners. Both have different requirements with regard to financial services and the microfinance institutions have to adapt. This is because growing prosperity is automatically associated with growth in society, the economy and people s expectations. In the financial sector, a shift in demand is typically observed from the classic microfinance business towards SME banking services. New players often regional providers also begin to enter the market. Established financial institutions respond by adjusting their business models, for example by providing financing for the new regional financial services companies. This pattern is repeated without exception in every economy when it begins to gather momentum. For asset managers like respons Ability, the changes that result from evolving clients inevitably present a big challenge. It s a challenge that I welcome, as it brings clarity to the market place about whether or not its players are fit and up to the task. It also represents an opportunity because new types of needs and demands emerge. Standardisation and compliance require companies of scale First the financial crisis, then tougher regulations. These developments have resulted in fierce standardisation and compliance costs, requiring companies to become institutions of scale. Financial services providers have faced waves of new regulations since the last financial crisis. The costs of compliance also demand a critical mass. This is true for all segments of financial services and development investments are no exception. Effective cost management especially in light of higher regulatory standards is just as important for specialised asset managers as it is for general asset managers. More efficient use of administrative, processing and distribution structures is key. For responsability, this means building a platform that is as lean as possible, via which we can serve a landscape of development investment products across three sectors: agriculture, energy and finance. Technology accelerates growth and development Modern technologies have always been a catalyst for development. But the current dynamic may be surpassing anything we responsability Micro and SME Finance Leaders Quarterly Report 11

12 have ever seen before. Rural areas are invariably disadvantaged by a shortage of basic daily products and services. The reason for this is usually the high costs of the last mile. For example, centrally controlled landline telephone networks where the costs for connecting individual homes to the network were too high. Typically, the provision of health care services decreases with the remoteness of an area due to cost factors. Developments in technology suddenly eliminated part of this hurdle: thanks to mobile networks, people that have never had a telephone line in their homes and never will are now using mobile telecommunications. Soon they will also have basic health care diagnostics via the same channel. This phenomenon of skipping a development step is called leap frogging. We are seeing a similar trend today in the supply of energy. For decades the focus was on connecting households to centralised grids. Recently, however, the prices for photovoltaic technology and batteries have dropped to a level that makes self-sufficiency affordable in decentralised systems. Internet and smartphones have now become part of the mobile communications industry. The leap frogging effect here is that for many people the smartphone will be the first computer they ever have. The lack of financial resources in developing countries means new technologies have to be operated more cheaply than in OECD countries. These additional restrictions give rise to particularly radical innovations. As a result, the most advanced financial services in mobile banking are coming directly from the enterprising heart of developing countries. We are observing with interest how the health and education sectors are developing. The current state of key technologies is looking very promising for the future. Rochus Mommartz has been the CEO of responsability since He was instrumental as a consultant when the company was founded in 2003 and was one of its first employees. For more development impact related articles please refer to responsability s latest annual publication Perspectives 2017/2018 responsability Micro and SME Finance Leaders Quarterly Report 12

13 Fund Facts Fund name Fund domicile and type Portfolio manager Management company Central administration Custodian bank responsability SICAV (Lux) Micro and SME Finance Leaders Luxembourg, SICAV (Société d Investissement à Capital Variable) responsability Investments AG, Zurich responsability Management Company S.A., Luxembourg Credit Suisse Fund Services (Luxembourg) S.A., Luxembourg Credit Suisse (Luxembourg) S. A., Luxembourg Inception date (fund) 15 November 2006 Fund currency Target net return in fund currency Distribution Valuation (NAV calculation) Subscription of shares Redemption of shares Approved for distribution to professional, semiprofessional and qualified investors Minimum subscription Sales restrictions Retrocessions USD, hedged EUR, CHF and NOK share classes available 4 7% p.a. over a horizon of five years. The target return is not a projection, prediction, or guarantee of future performance, and there is no guarantee that the target return will be achieved. No distribution, returns are reinvested On the last Luxembourg banking day of each month Monthly, requests must be submitted three banking days before the respective value date Monthly, subject to 90 calendar days notice Switzerland, Germany, France, Luxembourg, Netherlands, Norway, Sweden, Denmark, Finland I (USD) and S (EUR,CHF) / I-II (USD,EUR,CHF) I-II (NOK) / I-III (NOK) The fund is open to qualified investors in the sense of the Swiss Federal Act on Collective Investment Schemes No retrocession fee is paid Share classes Valor ISIN Total Expense Ratio (TER) Inception date (classes) I (USD) LU Approx. 1.4% August 2010 S (CHF) LU Approx. 1.4% August 2010 S (EUR) LU Approx. 1.4% October 2010 I-II (USD) LU Approx. 1.7% January 2017 I-II (EUR) LU Approx. 1.7% February 2016 I-II (CHF) LU Approx. 1.7% n/a I-II (NOK) LU Approx. 1.7% January 2017 I-III (NOK) LU Approx. 1.4% n/a responsability Micro and SME Finance Leaders Quarterly Report 13

14 Risks: The risk and return profile of the fund does not reflect the risk under future conditions that are different from the situation in the past. Detailed description of the fund risks can be found in the prospectus. Legal disclaimer: This information material was produced by responsability Investments AG (hereinafter responsability ). This information material relates to responsability SICAV (Lux) Micro and SME Finance Leaders (further referred to as the Product ). The information contained in this information material (hereinafter information ) is based on sources considered to be reliable, but its accuracy and completeness are not guaranteed. The information is subject to change at any time and without obligation to notify the investors. Unless otherwise indicated, all figures are unaudited and are not guaranteed. Any action derived from this information is always at the investors own risk. This information material is for information purposes only, and is not an official confirmation of terms. The value of an investment and any income from it are not guaranteed. Changes in the assumptions may have a substantial impact on the return. Past performance is no indication of current or future performance, and the performance data do not take account of the commissions and costs incurred on the issue and redemption of shares. An annual fee shall be charged for the administration, asset management and distribution services provided as part of this financial product. The maximum amount of this management fee shall be based on the prospectus. Furthermore, responsability shall not receive or pay either one-time or recurring remuneration to other distributors in connection with this financial product. This information is not intended as an offer or a recommendation or an invitation to purchase or sell financial instruments or financial services and does not release the recipient from making his/her own assessment. In particular, the recipient is advised to assess the information, with the assistance of an advisor if necessary, with regard to its compatibility with his/her own circumstances in view of any legal, regulatory, tax, investment-related, and other implications. Investments held by the financial product described in this information material are associated with a higher risk than investments in more developed markets or countries. Investors are expressly made aware of the risks described in the prospectus and the lower liquidity and greater difficulty in determining the value of the fund s investments (which are generally unlisted and not traded), and must also be prepared to accept substantial price losses including the entire loss of their investment. responsability and/or the members of its board of directors and employees may hold shares in the financial product (or any related investments) mentioned in this information material and may add to or sell these positions from time to time. Additionally, the members of the board of directors and employees of responsability may serve as members of boards of directors of the investments in which the financial product is invested. This information material is expressly not intended for persons who, due to their nationality or place of residence, are not permitted access to such information under applicable law. The financial product specified in this information material is not licensed for distribution in the United States of America. As a result, it may not be offered, sold, or delivered there. Neither the present information material nor copies thereof shall be sent or taken to the United States of America, or issued in the US or to a US person (in the terms of Regulation S of the United States Securities Act of 1933, in the respective current version). Subscriptions are only valid on the basis of the current sales prospectus and the most recent annual report (or semiannual report, if this is more recent). The prospectus, the management regulations, and the annual and semiannual reports may be obtained free of charge from responsability Management Company S.A., Luxembourg, from the Swiss representative, the paying agent and from any distribution partner. This information material may not be reproduced, stored in a retrieval system, or transmitted, in part or in full, in any form or by any means, whether electronically, mechanically, photocopied, recorded, or otherwise, without the prior written consent of responsability. Germany: The Product is registered for distribution to professional/semi-professional investors in Germany. France: The Product is an alternative investment fund (AIF) within the meaning of Directive 2011/61/EU (AIFMD), which is authorized to be marketed to professional investors in France in accordance with Articles L and D to of the French Code monétaire et financier, Articles 421-1A to of the General Regulation of the Autorité des marchés financiers and Instruction of the Autorité des marchés financiers. This marketing material constitutes promotional material as defined in Article of the General Regulation of the Autorité des marchés financiers. It is provided for information purposes only and may not be relied upon to make an investment decision. No decision to invest in Product should be made without prior review of the complete investor information documents required by applicable laws and regulations, which are available free of charge in the English language at This marketing material is intended exclusively for, and may only be distributed to professional investors as defined in Articles L , D and D of the French Code monétaire et financier. Luxembourg: The product was approved by the Commission de Surveillance du Secteur Financier ("CSSF") in Luxembourg for distribution to the Professional investors under the Chapter 1 Article 53 of the Law of 12 July 2013 on alternative investment fund managers. Custodian is Credit Suisse (Luxembourg) S.A. 5, rue Jean MonnetL-2180 Luxembourg and Distributor is Credit Suisse Fund Services (Luxembourg) S.A., 5, rue Jean Monnet, L-2180 Luxembourg. The Netherlands: The Product described herein is registered for distribution in the Netherlands to professional investors within the meaning of the Dutch Act on Financial Supervision and the interests in the Product described herein may therefore only be offered upon issue or thereafter, and whether directly or indirectly, to professional investor within the meaning of the Dutch Act on Financial Supervision. Norway: The Product is authorised for distribution to professional investors defined under the Section 10-2 of the Regulations to the Securities Trading Act in Norway and regulated by Finanstilsynet, the Financial Supervisory Authority of Norway. responsability Nordics AS is authorised in Norway and regulated by Finanstilsynet, the Financial Supervisory Authority of Norway. Switzerland: This Product is not authorized for distribution to the public in Switzerland. The present information material is therefore strictly limited to internal use and may not be passed on to any third party, unless (i) such third party has solicited so on its own initiative, or (ii) such third party is a qualified investor under the terms of the Swiss Federal Act on Collective Investment Schemes and related regulations. The representative of the Fund in Switzerland is Credit Suisse Funds AG, Zurich. The paying agent in Switzerland is Credit SuisseAG, Zurich. responsability Investments AG, All rights reserved. responsability Investments AG Josefstrasse Zürich responsability Management Company S.A. 23, Avenue de la Liberté, L-1931 Luxemburg responsability Micro and SME Finance Leaders Quarterly Report 14