Building a diversified portfolio - step by step
The investment portfolio is built via a top-down process, drawing on the respective areas of expertise of Trill Impact Microfinance and Developing World Markets (DWM).
- Regional Allocation: The portfolio construction process starts from a regional perspective. Events like droughts and other weather-related events can impact a whole region or continent negatively so we aim to avoid excessive exposure to one geography.
- Country and Currency Allocation: Together with DWM, the investment team looks at factors like how well regulated the microfinance market in each country is, how mature the microfinance institutions are and finally, pricing versus risk. This step generates the model portfolio, how we envision the ideal portfolio to be allocated, given country risk, currency risk, and pricing.
- Microfinance Institution Assessment: This step includes performing the assessment of the individual micro and impact finance institution, where we analyze credit worthiness as well as SDG alignment to obtain a full picture of the financial and impact potential of the investees.
- Loan Assessment and Availability: In this final step, DWM seeks to secure the loans to execute the model portfolio. Funding needs differ and vary over time and between micro and impact finance institutions. Therefore, the model portfolio is adjusted along the way according to the availability of transactions.
The end result provides exposure to a diverse set of micro and impact finance institutions, targeting attractive returns while enabling millions of individuals a chance to start, or build, a business or increase their household disposable income - in parts of the world where these opportunities are needed the most.