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Introduction
CONTEXT Strategic investment funds (SIFs) are special-purpose investment vehicles, backed by governments or other public institutions, that seek a double bottom line of financial and economic returns. They invest in, and mobilize commercial capital to, sectors and regions where private investors would otherwise not invest or would invest to a limited extent. Governments engage in a wide range of investment activities, from state-owned enterprises and public-private partnerships to managing international reserves and public pension funds. Within this range of government investment activities lie both traditional sovereign wealth funds and strategic investment funds. Traditional sovereign wealth funds (SWFs) are defined as “special-purpose investment funds or arrangements that are owned by the general government. . . . [and that] hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies that include investing in foreign financial assets.”1 SWFs primarily invest abroad; SIFs primarily invest in strategic activities at home. Whereas SWFs emerged in contexts of abundance, frequently to manage excess fiscal revenues from natural resource exports or large foreign exchange reserves, SIFs have often been a response to scarcity. In fiscally constrained circumstances, governments and multilateral institutions alike have recognized the importance of mobilizing private capital, and SIFs have served as a policy instrument response to this need. As long-term investors backed by the public sector, SIFs can counter market failures and bring stable capital to investment opportunities that would not be conventionally targeted by many private sector financial institutions for a variety of reasons, such as (1) the lack of a previous track record of private investment in certain sectors or themes that lead prospective investors to attribute excessive risk to such investments, (2) information asymmetries regarding the pipeline of potential investments,2 or (3) inefficient or underdeveloped exit markets (such as initial public offerings). For instance, SIFs are often deployed to play a significant role in filling the funding gap for infrastructure 1
