12.1 NIIF’s anticipated fund size and investors at time of writing

The Master Fund is anticipated to have total commitments of just over US$2.1 billion, of which US$1 billion (or 49 percent) would come from the government (table 12.1). at the time of this report, the Master Fund had received commitments of approximately US$900 million from commercial investors, resulting in a total of approximately US$1.8 billion including the government’s contribution. The largest investors, providing a commitment of US$250 million each, are the abu dhabi Investment authority (adIa), one of the largest sovereign wealth funds globally; australianSuper, australia’s largest superannuation fund; and the Ontario Teachers’ Pension Plan (Ontario Teachers), Canada’s largest single-profession pension plan (PTI 2019). Temasek, Singapore’s sovereign wealth fund, committed US$100 million. Four prominent domestic financial institutions— axis Bank, HdFC Group, ICICI Bank, and Kotak Mahindra Life Insurance— have also invested in the Master Fund (NIIF 2018a).

Investors committing to the Master Fund receive proportional ownership rights in NIIF Limited, the manager, and 3:1 co-investment rights with the Master Fund. For instance, adIa, australianSuper, and Ontario Teachers secured co-investment rights of US$750 million each, and Temasek secured rights of US$300 million. Such rights provide adIa, australianSuper, Ontario Teachers, and Temasek the ability to co-invest with the Master Fund in individual deals if they wish to do so. See further details on the co-investment strategy in the subsection on the Master Fund strategy.

The Fund of Funds is anticipated to have total commitments of US$1 billion, including the government’s stake. In June 2018, the board of the asian Infrastructure Investment Bank (aIIB) approved a US$100 million investment in the NIIF Fund of Funds (aIIB 2018).3 as part of aIIB’s proposed investment, NIIF has implemented ESG standards throughout its operations and, in all three funds, has recruited an ESG officer to ensure implementation.4

The government’s role as anchor investor of the NIIF funds was a key determinant of the decisions by adIa, aIIB, australianSuper, Ontario Teachers, and Temasek to consider investing in NIIF funds. The presence of prominent private Indian financial institutions as investors was regarded as an additional strength. discussions with adIa started in the context of a broad memorandum of understanding between the Indian and Emirati governments. aIIB, as a multilateral

TABLE 12.1 NIIF’s anticipated fund size and investors at time of writing

Government maximum commitment (US$, billions)

FUND OF FUNDS MASTER FUND

0.5 1.0

STRATEGIC OPPORTUNITIES FUND

1.5

Total anticipated fund size (US$, billions)a

Investors at the time of writing (excluding government) Just over 1.0 Just over 2.0

AIIB (US$100 million, potentially increasing to US$200 million) ADIA (US$250 million); AustralianSuper (US$250 million); Ontario Teachers (US$250 million); Temasek (US$100 million); four domestic financial institutionsb Just over 3.0

None

Source: World Bank elaboration. Note: ADIA = Abu Dhabi Investment Authority; AIIB = Asian Infrastructure Investment Bank; NIIF = National Investment and Infrastructure Fund; Ontario Teachers = Ontario Teachers’ Pension Plan. a. If NIIF succeeds in attracting commercial investors matching (with a 51 percent stake) the government’s maximum capital commitment. b. Canada Pension Plan Investment Board, Canada’s Public Sector Pension Investment Board, and the US International Development Finance Corporation have also invested since the case study was written.

development bank, was also naturally predisposed to partnering in a vehicle backed by the government.

NIIF has established a strong relationship with India’s Ministry of External affairs and is leveraging India’s foreign offices to obtain introductions to foreign sovereign wealth funds (SWFs) and pension funds (both public and private). The CEO of NIIF is provided the opportunity, through various forums, to brief Indian ambassadors and high commissioners on the strategy and activities of NIIF. Several ambassadors and high commissioners are well versed about NIIF and highlight the NIIF investment opportunity to authorities in the countries where they are posted, deferring more technical conversations directly to the NIIF management team. This process has proven effective in establishing contacts with SWFs in particular. In addition, NIIF initiates contacts with many SWFs, pension funds, and institutional investors directly.

NIIF’s clear commercial orientation, professional management, and the fact that the government does not have majority control and cannot skew investments away from the commercial goals are also very important aspects. according to NIIF management, adIa’s investment in the Master Fund, while kick-started by the memorandum of understanding, was ultimately driven by commercial considerations. Target portfolio company returns discussed with adIa are in line with the typical equity return expectations for infrastructure projects. adIa’s infrastructure investment team analyzed the opportunity as any other commercial investment in adIa’s portfolio and decided to pursue it on the basis of risk/return considerations. The more recent commitments of australianSuper and Ontario Teachers further demonstrate the perceived strength of NIIF’s governance, value added, and attraction as a local manager and partner for international capital.

NIIF has offered investors in the Master Fund a board seat in NIIF Limited, the fund management company. The bar for investors to obtain a board seat is set at 10 percent of the total target capital committed to the Master Fund, or just over US$200 million. despite falling below the threshold, the four domestic investors also received, collectively, one board seat. See the governance subsection for more details on board composition.

INVESTMENT STRATEGY

By design, NIIF exclusively pursues investments offering a commercial, risk-adjusted return. Each of the three funds has a different investment strategy, detailed in the following.

Master Fund strategy

The Master Fund aims to build a sizable portfolio of brownfield infrastructure projects in specific infrastructure sectors, establishing investment platforms that act as sector consolidators (see figure 12.2). a platform is a company fully or partially owned by the fund that acquires a series of operating infrastructure assets in a certain sector in India. Partners in the platform may be infrastructure investors or operators with relevant sector expertise. The maximum exposure the Master Fund can take in an investment is 25 percent of the investible portion of the fund, as prescribed by aIF rules. The Master Fund aims for control positions in these platforms and, if it has to take a minority stake, seeks protection