Governance
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case study in appendix A). Similarly, ISIF’s typical remuneration package comprises a fixed base salary, discretionary performance-related pay where appropriate, and a career average defined benefit pension. External fund manager selection
By choosing to recruit an external manager as the SIF’s primary manager, the public sponsor largely circumvents the link to public sector pay scales. One of the advantages with SIFs run by external private management companies is that their compensation structure can deviate from public sector scales because they are completely outside the government apparatus. Fee levels for such managers therefore reflect the typical private equity combination of management fees and share of profits. The Philippine Investment Alliance for Infrastructure, a 10-year closed-end fund investing in Philippine infrastructure projects and businesses, is a good example of a SIF managed by an external, well-reputed manager (see box 4.7). The public sponsor must ensure it undertakes a competitive recruiting process, and ideally involve the selected external manager in the design details of the fund to ensure ownership. The general sequence of events for PCFs involves the GP bringing an investment thesis it finds compelling to prospective investors to solicit capital. In the SIF case, this sequence is reversed: the public sponsor has a compelling economic mandate that it wants a professional manager to execute on commercial terms. The public sponsor therefore often uses a competitive request for proposal (RFP) process to identify a suitable primary manager for the SIF (see box 4.7 on the recruitment of the Philippine Investment Alliance for Infrastructure’s manager). To secure the fund manager’s ownership when the general sequence of events has been reversed, the public sponsor must ideally leave some details of the fund design open for the selected fund manager’s input. In fact, the RFP process may offer
BOX 4.7
Recruiting an external manager for a SIF: PINAI The Ph i l ippi ne I nvest ment A l l ia nce for Infrastructure (PINAI) is a 10-year closed-end fund, dedicated to equity and quasi-equity investments in Philippine infrastructure projects and businesses. PINAI was launched in July 2012 with 26 billion Philippine pesos (approximately US$625 million)a in committed capital and was fully invested by November 2015. PINAI is an alliance of domestic and foreign investors, with a private fund manager. The domestic investor is the Government Service Insurance System (GSIS), a state-owned pension fund. The foreign investors are the Asian Development Bank (ADB); Macquarie Infrastructure and Real Assets (MIRA), an
Australian asset manager with global expertise in infrastructure investing; and Dutch pension fund Algemene Pensioen Groep (ADB 2012). A subsidiary of MIRA was competitively selected to manage PINAI (ADB 2012). Founding sponsors ADB and GSIS selected MIRA as the fund manager after a six-month competitive process during which the proposed investment mandate was presented by the sponsors to a group of 10 potential fund managers with established track records. Five of these managers expressed an interest in the mandate and made formal presentations to ADB and GSIS, after which three were shortlisted, and MIRA was eventually chosen (ADB 2012).
a. Based on the July exchange rate of US$1.00 = 41.60 Philippine pesos. The Philippine peso depreciated substantially over the following years. As of the end of October 2018, the exchange rate was US$1.00 = 53.40 Philippine pesos.
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