2.6 The additional value of SIFs: Case study examples

investors have a relatively stable partner in a SIF, with an open line to the government, which can be helpful especially at times of political leadership change. Table 2.6 provides a breakdown of more specific additionality that each of the case study SIFs seeks to provide.

SIFs can play a role in countering government and market failures in the infrastructure sector. many emerging market and developing economy governments lack the human capital to transform projects into bankable, fully documented projects that can be tendered to investors. With their in-house investment expertise, SIFs can complement the project preparation capacity of their host country. Senegal’s FOnSIS (Fonds Souverain d’Investissements Stratégiques, or Sovereign Fund for Strategic Investments), for instance, acts as project developer in the infrastructure sector, unlocking a pipeline of strategic assets for other investors to co-invest. Especially in countries where they have not invested before, infrastructure funds can benefit from pipeline sharing agreements with SIFs. For example, meridiam, a global infrastructure fund manager with

TABLE 2.6 The additional value of SIFs: Case study examples

SIF MODE OF ADDITIONALITY

Asia Climate Partners • Targets high-risk/frontier markets in Southeast Asia with limited private investment in green sectors

FONSIS (Senegal)

Ireland Strategic Investment Fund

Marguerite Funds

National Investment and Infrastructure Fund (India) • Takes greenfield projects with construction risk • Embeds ADB ESG standards; enhances credibility of portfolio companies • Acts as project developer or codeveloper for greenfield projects • Provides demonstration effect on commerciality of projects with development impact • Intermediates between government and private investors • Has investment horizon that can extend to 25–30 years • Invests across capital structure—senior debt to start-up equity • Brings local presence and credibility as a sovereign-backed strategic fund • Focuses on actively developing new greenfield infrastructure projects • Has investment horizons of 20 or more years, providing tenors not supplied by market • Has local presence • Demonstrates the feasibility and attractiveness of investing in Indian infrastructure through direct and indirect investment

• Helps international institutional investors identify credible, professional local counterparts (for example, local developers) • Facilitates access to and dialogue with ministries and other government stakeholders in the infrastructure sector

• Professionalizes infrastructure sector through investing with high-quality developers and facilitating knowledge transfer from foreign partners Nigeria Infrastructure Fund • Focuses on greenfield projects, including earlier-stage projects that require substantial involvement in design and development

• Invests generally when there is a funding gap unfulfilled by private investorsa • Provides demonstration effect for innovative projects

Source: World Bank; see case studies in appendix A. Note: ADB = Asian Development Bank; ESG = environmental, social, and governance; FONSIS = Fonds Souverain d’Investissements Stratégiques (Sovereign Fund for Strategic Investments of Senegal); SIF = strategic investment fund. a. Marguerite also participates in competitive tenders.

€6.2 billion in assets under management, identified Senegal as a priority market for its Africa fund but had no prior experience investing there. Its partnership agreement with FOnSIS calls for transparency from both parties in pipeline sharing, potentially opening new investment opportunities18 (see thematic review 2 in appendix B). unlike private investors, SIFs may also identify and address ecosystem constraints. For example, nSIA-nIF played a key role in unlocking domestic pension fund capital for infrastructure financing by partnering with Guarantco19 to launch Infracredit, an agency that guarantees long-term local currency bonds issued to finance infrastructure projects in nigeria (see thematic review 1 in appendix B).

Observing the additionality principle means that SIF investments are typically (but not always) steered toward greenfield investments and unlisted assets, for which the financing gap is clearer. As table 2.6 shows, several SIFs in the infrastructure space focus primarily on greenfield projects, for which there is scarcity of capital, to ensure they offer additionality. many private investors prefer to invest in less risky operational infrastructure, when project development and construction have been completed and the project is generating a steady flow of revenues. This risk aversion leads to a dearth of commercial financing for greenfield infrastructure projects.20 SIFs can help address this gap by taking on early-stage risk in infrastructure projects. For example, in the aftermath of the 2008 global financial crisis, when infrastructure investment in Europe had significantly decreased, the EIB and several national development banks of the European union set up the marguerite Fund. With this 20-year SIF, they aimed to stimulate greenfield infrastructure investments in the European union and set an example of long-term investment. In contrast, the nIIF master Fund, co-owned by the government of India and a number of mostly foreign commercial investors, currently focuses primarily on brownfield infrastructure assets (see the nIIF case study in appendix A). nIIF’s rationale is that foreign capital that has so far been reluctant to invest in Indian infrastructure can be persuaded more easily to first invest in brownfield infrastructure, which can serve a demonstration effect before the capital pursues riskier investments. notably, nIIF’s Strategic Opportunities Fund, which includes a focus on greenfield investment, has not yet attracted commercial capital alongside that of the government of India. SIFs also do not typically invest in publicly listed stocks because trading on a stock exchange implies an existing market for such assets. Here again, however, there may be exceptions.21 For financial management reasons SIFs may invest capital yet uncommitted to the double bottom line mandate in a portfolio of listed assets. For instance, ISIF’s portfolio has been transitioning a global, predominantly listed securities portfolio to a domestic investment–focused portfolio that reflects the double bottom line mandate set out in the nTmA Act 2014 (see the ISIF case study in appendix A).

In regions with limited private sector activity, SIFs may even be employed to kick-start industries in the local economy. The Palestine Investment Fund is an example of such a fund. With the lack of a thriving local economy, the fund originates projects and incubates companies as well as industries, employing a buyand-hold strategy given the lack of liquidity. It is a dominant investor in West Bank and Gaza in several sectors including renewable energy, agriculture and agribusiness, health care, and hospitality (see box 2.2 for more details).

In addition, both country-specific and thematic SIFs have been deployed to tackle the problem of climate change. India’s nIIF set up the Green Growth