UBS has set up and closed its first impact investing fund dedicated to investing in small and medium-sized enterprises among emerging and frontier markets, the Swiss bank said yesterday.

The Impact Investing SME Focus Fund is a fund of funds, managed by OBVIAM, an independent investment advisor specialising in long-term investments in emerging and frontier markets. It has a volume slightly over SFr50 million ($54.9 million).

The fund will take equity stakes in privately-held SMEs through the underlying funds. Investments will be made in sectors and businesses that drive social or environmental change. These include healthcare, education, access to finance, basic infrastructure and agricultural/sustainable forestry.

The significance of the strategy is that SMEs, UBS says, make up the backbone of most economies. In developing countries they employ more than 75 per cent of the workforce, yet very few have access or sufficient access to finance, UBS says. Microfinance banks serve micro entrepreneurs in these countries, whereas regular private equity firms and commercial banks target a few large companies like utilities or mining companies, leaving the SMEs neglected.

"The firms in which the fund invests commit themselves contractually to improve the lives of people in a direct and measurable way. Social considerations are therefore an integral part of the investment policy, and the social impact of the investments is monitored and measured independently by Global Impact Investing Reporting Systems (GIIRS) and Deloitte,” UBS said in its statement unveiling the fund. Investors will receive an annual social impact report, it said.

The fund has already made its first investment in an education fund in India. This investment will help the emerging middle class gain access to high-quality but low-cost education and other ancillary educational services like IT.