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| Strategic Investment Funds
as mentioned previously, set the investment policy; however, it delegates the determination, monitoring, and review of the investment strategy to the fund’s management body (NTMA), which does so by producing an ad hoc investment strategy document published on the website.9 In conformity with the practices of PCFs, a mixed capital SIF such as ACP, Marguerite, and India’s National Investment and Infrastructure Fund (NIIF) usually details its investment strategy within its private placement memorandum.
KEY ACTORS IN THE INVESTMENT MANAGEMENT FRAMEWORK The formulation of the investment policy is a function of the delegated governance structure of a SIF; that is, the policy is constructed by the owner or (by delegation) the board. The SIF’s investment policy is constructed like that of SWFs, for which a common governance arrangement is for the board to define the investment policy of the fund on behalf of the owner (Alsweilem and Rietveld 2017). Such an arrangement, for instance, is seen in NSIA’s model, in which the board of directors issues the NIF’s investment policy statement (NSIA 2019), or in FONSIS’s case as referenced earlier. Frequently, the manager may also be involved in providing input into the investment policy, aided by its presence on the board or investment committee (Alsweilem and Rietveld 2017). The SIF’s investment strategy, by contrast, is usually established through an iterative process between the sponsor or board and the manager. A consultative process to develop the strategy may, in some instances, be explicitly required. For example, Articles 40.1, 40.3, and 41.5 of the NTMA Act 2014 require NTMA, as ISIF’s manager, to formulate the investment strategy in consultation with the Minister for Finance and the Minister for Public Expenditure and Reform and with the advice of the NTMA investment committee. Such a process seeks to capitalize on the fund manager’s expertise to design a commercially feasible investment strategy while also ensuring consistency with the policy objectives of the public sponsor. A poorly defined strategy may hinder a SIF’s ability to hire qualified investment professionals, which, in turn, could affect a fund’s performance and limit its ability to crowd in commercial co-investors at the deal level.10 Particularly in mixed capital SIFs that seek commercial co-investment at the fund level, with the fund manager playing a crucial role in the fundraising process, it is highly recommended that the public sponsor involve the fund manager in defining the strategy. For mixed capital SIFs, demonstrating deep expertise and providing concrete visibility on their target sectors and the investment opportunities represent important components of successful fundraising.11 Commercial investors, for instance, may be deterred by a very narrow definition of the target sectors or permissible deal structures, which could restrict the fund’s investment pipeline or undermine its ability to achieve the targeted returns. The prospect of poor fundraising or, if fundraising succeeds, poor returns will deter prospective fund managers, because fees paid to fund managers are customarily linked to both fund size and performance. The public sponsor of a mixed capital SIF must be willing to entertain an open dialogue with the prospective fund manager and embrace some of its investment strategy proposals. Marguerite is a good example in this respect. When the European Investment Bank and other public sponsors decided to launch the first Marguerite fund in 2009, they appointed a newly set up external fund manager, whose chief
