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| Strategic Investment Funds
2. They invest primarily in unlisted assets3—either domestically or thematically (for example, by making climate-friendly investments)—to achieve financial returns as well as to fulfill a policy objective4 (double bottom line), with the latter sometimes referred to as the pursuit of economic returns. 3. They aim to mobilize commercial co-investment at the fund or project level. 4. They provide long-term, or patient, capital, primarily as equity, but also as quasi equity and debt. 5. They operate as professional fund managers on behalf of their investors, targeting commercial financial returns. 6. They are established as pools of assets (or funds) through various legal structures, such as investment company, trust, statutory corporation, or limited partnership. At their best, SIFs are professional financial intermediaries, operating at arm’s length from government. They straddle the public sector and private sector spheres and are well placed to take advantage of their strategic position between the state and the market. By capitalizing on their public and private sector links, SIFs act as specialized intermediaries for governments that seek to finance sectors that are underserved by private finance. SIFs seek to mobilize capital from private investors and other sources, such as development finance institutions (DFIs) or sovereign wealth funds (SWFs), which may invest public capital but on commercial terms. The combination of both types of capital sought by SIFs is referred to here as commercial capital. SIFs may be set up to exclusively enact a SIF mandate or may be part of a larger SWF or public policy purpose. SIFs may operate as a vehicle wholly devoted to a policy-driven double bottom line mandate or be embedded within a larger SWF with traditional functions such as stabilization and savings. India’s National Investment and Infrastructure Fund (NIIF) is an example of the former model; the Nigeria Infrastructure Fund (NIF), embedded within the Nigeria Sovereign Investment Authority (NSIA), is an example of the latter approach. SIFs may also be set up within an entity that performs other public policy functions: Malaysia’s Khazanah Nasional Berhad (Khazanah), for example, invests its capital with a policy-driven mandate while also performing the role of a holding company for select state-owned assets.
SIF OWNERSHIP AND MANAGEMENT MODELS Both the funding sources and management models of SIFs can be either solely public or public-private (see table 2.1). A crucial aspect of fund structure and governance is how to structure the ownership and management models to maximize the SIF’s operational independence while fulfilling the double bottom line mandate. These factors are discussed in the following chapters on the legal and governance aspects of the SIF, as well as on investment m anagement and process. As discussed in chapter 1, the ownership of a SIF is a function of its source of capital, and this book focuses on two categories of SIFs based on ownership: public capital SIFs and mixed capital SIFs. SIFs are supported by multiple management models (see table 2.2), resulting in varying investor control over the mandate and varying levels of market perception of the sophistication of the fund.
