Innovation

In their early development stages, TriLinc noticed huge gaps in financing SMEs in developing economies, as impact investing was struggling to scale and make a difference in these economies. Institutional investors and family offices (often referred to as accredited investors, who meet a certain yearly income or net worth test) were not “moving quickly enough and not putting sufficient capital into play” to drive socioeconomic growth in these areas, said Trant.

Retail investors, who control similar amounts of capital to institutional investors and in aggregate more than family offices, had very little access to attractive impact focused investments. TriLinc believed that democratizing access to impact investing could “exponentially increase the flow of capital into impact investing” and help fill this gap in financing SMEs in developing economies, thereby driving sustainable socioeconomic growth in these key areas. Furthermore, they wanted to do so in a way that had the potential to provide market rate returns to their investors.

This is where TriLinc’s Private Debt Plus ® (PDP) strategy comes into focus. PDP is TriLinc’s innovative private debt investment strategy, which provides private loans to SMEs that seek to produce meaningful environmental and social impacts in developing countries while pursuing market-rate returns to investors. These loans help SMEs expand, creating positive impacts on their local communities through job creation and poverty alleviation, as well as sustainable long-term economic development.

TriLinc seeks to provide market-rate returns on investments into SMEs in developing economies through their unique selection and investing strategy. They start with a top-down approach to selecting countries to invest in through their Macroeconomic Analysis Platform (MAP), a proprietary analytical tool used to pick out countries with favorable characteristics (such as growth fundamentals, legal and political stability, and capital markets access). From there, they work with a global network of institutional-class deal origination partners to find low risk investment opportunities in those countries.

Once potential target companies are found, TriLinc uses their ESG Management System tool, allowing them to systematically evaluate ESG considerations of the company. In the final stages, TriLinc applies their Impact Management System, which helps borrower companies self-identify an impact metric and measures and analyzes economic, environmental and social impacts of the company that align with the UN’s SDGs. If the company in question passes all of these screens and fits into TriLinc’s investment impact thesis, TriLinc finances the company and works with it directly or through an origination partner – even on the ground, in the country it's located in – to expand and promote socio-economic development.

TriLinc promotes economic growth in the regions the SMEs they extend PDP loans are located in. By contributing to the expansion of SMEs in developing economies, TriLinc enables the creation of new jobs, increases in wages, revenue, profitability, as well as taxes to local governments. These factors increase prosperity and contribute to economy stability and growth. The impact of TriLinc’s work accelerates progress towards achieving the goals of SDG 1, 8, 9, 10 12, and 17, which closely align to TriLinc’s portfolio level impact goals.

TriLinc Global believes in a dual mission of creating powerful impacts and meaningful returns: Nigeria: Cocoa traders – warehouse

Inspiration

The inspiration for TriLinc’s innovations and practices stem from the story of their founder, Gloria Nelund. As told by Trant, Nelund was a highly successful business woman working on Wall Street and walked away from it all to focus on philanthropy.

More specifically, one of Nelund’s last roles was CEO of the North America Private Wealth Division of Deutsche Bank, within which she had approximately $50 billion of assets under her purview. According to Trant, Nelund facilitated the most successful turnaround in the history of Deutsche Bank as its CEO, yet she knew deep-down that her calling was elsewhere. Although Nelund succeeded in great measure at Deutsche Bank, she knew she could be doing more.

Coincidentally, Nelund’s brother-in-law gave her a book called Half Time during this period of her life, containing a theory that deeply impacted her: while the first half of one’s life should focus on the building up of one’s family and career, the second half of life ought to be about giving back to others.

Taken by this message, Nelund retired early and traveled around the world as a philanthropist. She realized during this time that she was meant to follow in her father’s footsteps as an entrepreneur, who had started many community businesses in their small Ohio hometown. This level of investment, when done right, breathes support into businesses that create jobs and put goods and services into the community, which was a huge motivating factor for creating TriLinc. Not only was Nelund motivated by building community through entrepreneurship, but she also learned key lessons from her philanthropic experience.

Nelund returned to the business world with a new lens for creating good in the world through investing. TriLinc’s mission consequently pulls from an impact-driven outlook.

“We believe capitalism is the best system out there, but it’s not perfect. We can create a better capitalism, and that’s what we are about,” explained Trant. “The real goal of TriLinc is to create a better society through investing.”

Overall impact

Since TriLinc’s inception, it has invested over $1.63 billion into SMEs in developing economies around the world. TriLinc’s funds have helped investors of all sizes make investments that have positive impacts on society while targeting market rate returns, which is highlighted by their funds’ performance. Since July 1st, 2013, TriLinc has had positive quarterly returns (on a total return basis) in 38 out of 39 quarters. TriLinc itself has been looking to expand by “investments in any new funds to include [the] United States and Europe,” said Trant, further promoting development in communities that have lacked access to capital even in developed countries.

TriLinc has invested in approximately 99 SMEs in these regions, creating over 40,000 new permanent jobs. This innovation investment process and the jobs it has created has far reaching effects. They provide stable employment opportunities, growing wages, taxes that fund public infrastructure and development, increase the quality of goods and services produced locally, and create an emerging middle class in these communities.

Recently, TriLinc has placed extra emphasis on climate change, recognizing the crisis as “one of the most pressing issues affecting society and our planet.” TriLinc has therefore raised their standards by compiling increasing amounts of data from their borrowers about greenhouse gas emissions and risk mitigation efforts. Trant stressed that TriLinc’s purpose since inception is to assign equal weight to achieving market rate returns for their investors and honoring ESG and impact goals in measurable ways.

Trant went on to share an example of a deal for a wind turbine farm that financially looked promising on paper, but was ultimately refused by TriLinc. Through their own independent research, they found out that the turbine farm would displace local communities (including indigenous families). Additionally, the land hadn’t been properly appraised for acquisition and resettlement compensation, which was a breach of international standards.

“We’re not going to be on the cutting edge of climate action – we’re not solely a climate fund - but we want to make sure that all borrowers are doing their part for environmental sustainability,” explained Trant.

All TriLinc data is as of June 30, 2023.

Business benefit

TriLinc’s innovative investing process and strategy has been integral toward funding SMEs in developing markets, bringing about the creation of thousands of jobs and opportunities across the globe. By facilitating positive growth, TriLinc provides a direct impact to the lives of diverse business owners and workers, all while focused on earning market rate returns for its investors. Although time consuming, the firm’s investment criteria ensures a tailored approach to investing for good.

Screening countries thoroughly for investment potential is a scrutinizing process at TriLinc, pulling from a 30-metric grid which combines data reported by the World Bank, World Economic Forum and United Nations, among other reputable sources. This step is critical toward identifying countries with attractive growth, stability and capital markets.

Things that TriLinc looks at very closely include: income, GDP and population growth; corruption index, ease of doing business, currency volatility and property rights; and interest access, energy grid, transportation and banking infrastructure.

As it turns out, this great funnel eliminates roughly 70 out of 100 eligible countries, and provides TriLinc with invaluable insight into when and under what circumstances or specific industries an investment opportunity ought to be pursued in various countries.

This model unequivocally brings support to developing markets hungry for capital, creating jobs and injecting life into new and exciting business opportunities. “Our target counties are concentrated in the regions of Latin America, Sub-Saharan Africa, Southeast Asia and emerging Europe,” revealed Trant. “We have invested in 38 countries, in about 40 different sectors, in 4 different regions.”

All TriLinc data is as of June 30, 2023.

Social and environmental benefit

Trant went on to offer key insight on how the 2008 financial crisis impacted their investment strategy with respect to societal outcomes for stakeholders in target markets. At the time, in order to mitigate lending risk, banks were required to hold more reserves when lending to smaller companies, as opposed to corporate clients. This turned many banks away from merchant bank lending, revealing an opportunity for TriLinc to enact its mission. The firm went on to locate over 500 middle market lenders, narrowing this figure down to approximately a dozen long-term partners, and further honing its in-country origination and deal servicing model to identify, diligence, finance and support under-banked SMEs. By filling a critical market need in developing countries, TriLinc has softened the financial crisis for local markets in flux, particularly during the COVID pandemic and ensuing supply chain disruption, and laid the foundation for long-term, service-minded partnerships.

Taken in total, TriLinc has created 41,142 permanent jobs across Latin America, Sub-Saharan Africa, Southeast Asia and Emerging Europe. Not to be outdone, the firm’s environmental impact speaks for itself, as evidenced by its 2022 sustainability report. Within its contents, TriLinc declares its ESG goals to be “equal parts supporting sustainable businesses and mitigating risk.”

These innovations contribute greatly to developing economies, as capital there isn’t nearly as plentiful as America’s. Yet, by transplanting investment opportunities to outside markets, TriLinc is leading the way for investment firms to foster innovation and capital advancements on the global stage.

All TriLinc data is as of June 30, 2023.

Interview

Joan Trant, Managing Partner