Overview of Strategic Investment Funds
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The mandates of both public and mixed capital SIFs frequently focus on infrastructure investment, but some employ a more diversified strategy focused on other sectors. Many SIFs established in emerging market and developing economies focus primarily on infrastructure; examples include the Ghana Infrastructure Investment Fund, NIIF, and NSIA-NIF. Other SIFs have pursued broader approaches focused on sectors like real estate, tourism, agribusiness, health care, and financial services. For instance, in its first incarnation as the Fonds Marocain de Développement Touristique, the Moroccan SIF Ithmar Capital was set up to help implement the Vision 2020 strategic plan to propel Morocco into a global top-20 tourism hot spot. In 2016, this mandate was broadened to encompass all domestic productive sectors.10 Adhering to a double bottom line mandate is more complex than having a singular target, and SIFs struggle with both measuring and managing these dual objectives. In addition, nonfinancial impact is typically harder to measure than more easily quantifiable financial returns. As table 2.5 shows, SIFs typically use either a transaction-by-transaction approach or a portfolio approach to embedding the double bottom line mandate (see also box 2.1). ISIF, for example, has striven to diligently address both financial and policy objectives through a rigorous transaction-by-transaction screening and monitoring process that seeks to ensure both targets are met for each potential investment. By contrast, NSIANIF takes a portfolio approach: although overall it seeks to meet a financial return target, 10 percent of available investment every year can be dedicated to social infrastructure projects that may have a lower internal rate of return (see the NSIA-NIF case study in appendix A). Similarly, the European Investment Bank (EIB) requires that all its investee funds, including Marguerite, measure the economic rates of return of their investments and comply with minimum return thresholds. Marguerite I guidelines were thus based on EIB guidelines
TABLE 2.5
Managing the DBL
MANAGING THE DBL
EXAMPLES
Transaction-by-transaction approach Require projects to present potential for both financial and economic/social returns during project identification.
ISIF looks to satisfy three metrics—additionality, displacement, and deadweight—in each project (see box 2.1 for explanation); and its financial target is to produce returns above the cost of Irish government debt. ISIF must comply with restrictions of EU state aid and EC Competition Authority so that it does not compete with private sector capital.
Portfolio approach Prioritize financial targets for the bulk of the portfolio, Although NIF is required to pursue financial returns (US CPI + 3%), the and allow lower targets for special carveouts of the establishment law allows for 10% of NIF’s investment in any fiscal year on portfolio. social infrastructure projects that enhance economic development in underserved regions that present less return potential. For Khazanah, the financial return is more important and is prioritized in investments outside Malaysia, while there is a lower IRR target for domestic investments. Require a certain percentage of projects selected to present potential for economic return.
EIB requires that a certain percentage of projects invested in by EIBsupported SIFs must be EIB eligible (that is, economic return must be present).
Source: World Bank. Note: CPI = Consumer Price Index; DBL = double bottom line; EC = European Commission; EIB = European Investment Bank; EU = European Union; IRR = internal rate of return; ISIF = Ireland Strategic Investment Fund; Khazanah = Khazanah Nasional Berhad (Malaysia); NIF = Nigeria Infrastructure Fund; SIF = strategic investment fund.
