Emerging Markets Seen as Next Big Asset Class with Trillion-Dollar Potential

The World Bank and other multilateral development banks are working to tap into a trillion-dollar investment opportunity in emerging markets. Over the next 10 to 15 years, 1.2 billion young people in developing countries will reach working age, but their economies are expected to create only around 400 million jobs, leaving a gap of 800 million. This gap could have significant implications for poverty, migration, and stability.

To address this challenge, the World Bank Group has grown private capital mobilization from $35 billion in 2022 to $112 billion last year. This progress has been made through building public-private partnerships that deliver resources needed to realize growth in emerging markets and developing countries. The Organization for Economic Co-operation and Development (OECD) countries mobilized approximately $600 billion between 2012 and 2024.

The next frontier is bringing institutional capital into development at scale. Institutional capital is invested in almost everything, from government bonds and office towers to private credit and renewable energy. However, one enormous investment opportunity remains largely untapped: investing in businesses across emerging and frontier markets. The World Bank and other development banks are making their accumulated financial assets, expertise, and knowledge available to institutional investors.

The Netherlands and the World Bank are working together to further unlock these opportunities. The World Bank brings investments, country knowledge, and experience in managing risk, while the Netherlands has a strong development tradition, financial expertise, and institutional investors that see value in investing in emerging markets. This collaboration has led to concrete results, such as ILX investing capital on behalf of Dutch and Danish pension funds alongside the International Finance Corporation (IFC) in sustainable forestry in Uruguay.

To attract more investors and release development bank capital for new projects, the World Bank Group and five other multilateral development banks are working on common ways to assess, document, package, and transfer investments. This will enable pension funds to invest in emerging markets with scale, diversification, reliable information, and familiar structures. The Global Emerging Markets Risk Database (GEMs) provides a clear picture of credit performance in emerging markets.

The data from GEMs shows that the average default rate of emerging market private debt is comparable to developed markets, and recovery rates are above many global benchmarks. Crucially, the default patterns are only weakly correlated with developed markets, making emerging market investments with MDBs/DFIs a compelling diversifier in institutional portfolios. If only 1 percent of the $100 trillion assets under management from global institutional investors and pension funds would go to emerging and frontier markets, this would mean $1 trillion extra in investments.

The World Bank Group has demonstrated what can be achieved, and Dutch investors have shown that institutional capital can participate. The ambition is to make that participation commonplace, which would shape the economic future of a generation. A young boy can go to school to realize his dream of becoming an engineer, and a woman can grow her business into an international business. This is a triple win worth investing in together.

Key points

• The World Bank and partners aim to unlock a trillion-dollar investment potential in emerging markets.
• Institutional investors can participate in emerging market investments with multilateral development banks.
• A 1 percent allocation of institutional investors' assets to emerging markets could mean $1 trillion extra in investments.