Investment and Risk Management
executive officer was extensively involved in defining for Marguerite an investment strategy as aligned as possible with fund industry best practices (see the case study in appendix A).
COMPONENTS OF THE INVESTMENT POLICY Key elements of the investment policy include the following. • Policy purpose. Investment policy statements generally start with an identification of the SIF’s purpose and double bottom line mandate. This simple but vital statement sets the stage for the subsequent rules. It also adheres to two key generally accepted principles and practices (GAPP) set out in the Santiago Principles: (1) GAPP 18, which states that “the SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies)”; and (2) GAPP 19.1, which states that, “if investment decisions are subject to other than economic and financial considerations, these should be clearly set out in the investment policy and be publicly disclosed” (IWG 2008, 8). NSIA-NIF’s investment policy, for instance, complies with both by clarifying the objectives of the fund up front, stating its double bottom line objective, and indicating an overall elevated focus on financial returns: “The Fund seeks to make a positive financial return on its investments in the infrastructure sector in Nigeria. It also aims to attract and support foreign investment and enable growth” (NSIA 2019).12 Similarly, Malaysia’s Khazanah Nasional Berhad clarifies the bifurcation of financial and economic return objectives when it states that its “commercial fund aims to achieve optimal risk-adjusted returns, whilst its strategic fund undertakes strategic investments and holds strategic national assets with long-term economic benefits.”13 • Alignment with national priorities. Public capital SIF investment policies are generally crafted to align with the sponsor’s overall vision for socioeconomic development. For instance, Articles 42.1 and 42.2 of the NSIA Act 2011 require that NSIA-NIF investments align as far as possible with national infrastructure priorities, with a specific prioritization of federation-level economic benefits over local or regional ones. Similarly, ISIF’s Investment Strategy 2.0 is informed by the objectives of Project Ireland 2040, which focuses on five priority themes (ISIF 2019). Public capital SIFs typically focus on national-level priorities, and mixed capital SIFs may reflect similar value systems. Marguerite I’s management board had the ability to veto transactions if a proposed investment was potentially contrary to European Union (EU) policy objectives or publicly stated national policy in the country where the project was located.14 • Eligible investments. In line with the policy purpose discussed earlier, the public sponsor provides a broad definition of the eligible investments the fund can make, focusing on private markets. The priority placed on investing in unlisted assets is core to the definition of a SIF: it is hard to justify the additionality of investments in listed companies whose securities are routinely purchased and sold by other capital market investors. For example, Marguerite funds are required to invest, on a commercial basis, in policy-driven infrastructure projects in the EU and EU preaccession states, with particular focus on greenfield infrastructure, and based on a list of eligible sectors aligned with EU and national policies. These eligible sectors
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