Investment and Risk Management
fees to third-party managers. For example, the Philippine Investment Alliance for Infrastructure, externally managed by infrastructure fund manager Macquarie, engages only in direct investing. Conversely, SIFs managed by an internal team whose remuneration has a greater fixed component may be more open to indirect investing, to capture the benefits discussed earlier. SIFs that are internally managed or whose public sponsor is invested in the fund manager— for example, FONSIS, ISIF, NIIF, and NSIA–NIF—commonly pursue indirect and direct investing.38 Typically a SIF limits the amount of assets that can be delegated to an external manager. For example, the NSIA-NIF Investment Policy Statement permits NIF to use external managers as long as they do not manage over 50 percent of NIF assets (NSIA 2019, Article 7.2). Several aspects of a SIF’s investment policy and strategy are unique and unlike those of PCFs or SWFs. Unlike traditional SWFs formed as stabilization or savings funds, SIFs invest in privately traded assets. The SIF’s double bottom line objective results in an investment policy unlike that of both PCFs and SWFs in that it simultaneously seeks financial and economic returns. The choices of geography and sector in the investment policy of a SIF are often driven by economic or policy considerations; for PCFs, these choices are entirely driven by commercial investment pipeline and return factors, as identified by the fund manager. SIFs’ often-explicit crowding-in objective also sets such funds apart, differentiating their investment approach from PCFs. For instance, SIFs often focus on co-investment and minority investment strategies to facilitate capital mobilization, and explicitly avoid crowding out private capital. Marguerite II’s minority investment strategy, for example, seeks to minimize crowding out private capital, unlike standard infrastructure funds that prefer full control. Through their investment choices, SIFs seek also to differentiate themselves from PCFs and provide additionality to the investment landscape. For instance, ISIF’s investment strategy is to capitalize on its “key differentiating features of flexibility, long-term timeframe and credibility as a sovereign investment partner to fill investment gaps and enable transactions which would not otherwise easily be completed.”39 Similarly, NSIA-NIF’s investment policy allows it to add value to the infrastructure landscape by acting as project developer and sponsor, or by building capacity among local institutional investors.40 SIFs may also provide capacity building to their public sponsor. India’s NIIF engages in proactive discussions with central and local government authorities to steer new infrastructure development to commercial models.41 Finally, SIF investment strategies may also reflect unique advantages not typically found in PCFs. For instance, IFC [International Finance Corporation] Asset Management Company’s funds have relied on cost efficiencies achieved through investing alongside the IFC, thus capitalizing on access to the IFC’s proprietary pipeline. Conversely, SIF investment approaches may also contain restrictions resulting from being subject to an authorizing environment that does not apply to PCFs. For instance, as a government agency, ISIF must ensure that its investments do not breach EU State Aid rules that prohibit unfair financial support for private sector enterprises.42
RISK MANAGEMENT FRAMEWORK: KEY CONCEPTS The risk management framework for a SIF is a system that identifies, measures, manages, and regularly tracks all relevant risks that could potentially inhibit the
|
131
