12.2 NIIF’s Master Fund structure

FIGURE 12.2

NIIF’s Master Fund structure

Ownership: 49% Asset mgmt. company NIIF Limited (AMC)

Ownership: 51% AMC Board: • Investor representatives • 2 government representatives • Independent directors

Government of India Investor 1 Investor 2 Investor 3 Investor 4 Investor 5

49% US$1 billion 51% US$1+ billion

Master Fund (US$2 billion +) Master Fund advisory board: • Investor representatives • 1 government of India representative Investment committee of Master Fund: • NIIF Ltd CEO and senior management team • 1 independent member

Roads platform Ports platform Urban infrastructure Airports platform Energy platform

Co-investment pool 3:1 for existing Master Fund investors

Source: World Bank elaboration. Note: AMC = asset management company; CEO = chief executive officer; mgmt. = management; NIIF = National Investment and Infrastructure Fund.

through board representation or contractual rights (for example, veto) over key decisions such as investments, capital expenditure, leverage, related-party transactions, dividend, corporate deals, and exit options. Some platforms may be newly incubated by the Master Fund. Platforms are meant not only to be a vehicle to channel international capital to India but also to build strong domestic expertise in infrastructure investment and development. a key part of the strategy is to generate co-investment opportunities for the investors as the platform companies grow. The expected holding period for a platform is 8–10 years. Exits may include sale to other investors (such as domestic or international insurance and pension funds), initial public offerings or listed trusts, and refinancing or buy-back by promoters. all platforms will operate on a commercial basis. The Master Fund will seek to diversify investments by vintage year.5

For example, in January 2018, the Master Fund established a platform with dP World, the dubai-based port terminal owner and operator, to invest in ports, terminals, transportation, and logistics businesses in India. dP World controls the platform with a 65 percent stake and the Master Fund is a significant minority investor with the remaining 35 percent of the equity. The platform will invest up to US$3 billion of equity to acquire assets and develop projects in the sector. In March 2018, this platform made its first investment acquiring a 90 percent stake in Continental Warehousing, a terminal and logistics business previously controlled jointly by private equity firms abraaj and Warburg Pincus,

and the International Finance Corporation (IFC). The platform outbid PSa (the Singapore port operator) and Macquarie (the infrastructure fund) in a competitive tender. NIIF believes that the fresh ownership of Continental Warehousing and the willingness of the new investors to inject substantial capital will result in faster growth for Continental Warehousing. The port platform subsequently acquired other businesses. NIIF believes that providing efficient transport logistics on a countrywide scale will result in cost efficiencies for customers. additional platforms were established in 2019 to invest in road and renewable energy projects. In april 2019, the Master Fund launched a road platform together with ROadIS, a leading private investor and operator of transport infrastructure worldwide and a wholly owned subsidiary of the Public Sector Pension Investment Board, one of Canada’s largest pension funds. The platform plans to invest up to US$2 billion of equity to target toll-operate-transfer models, acquisitions of existing road concessions, and other investment opportunities in the Indian road sector (NIIF 2019). In February 2019, NIIF announced an investment in ayana Renewable Power, a renewable energy platform founded by CdC Group to develop utility-scale solar and wind generation projects across growth states in India (Everstone Capital 2019). at the time of writing, both platforms were in discussions to acquire assets.

Fund of Funds strategy

The Fund of Funds aims to provide anchor capital to fund managers with strong track records who are raising funds in infrastructure and allied sectors in India, including the following:

• Green infrastructure, such as renewables, clean transport, water, and waste. In april 2017, the Fund of Funds announced its first investment in this sector.

The Fund of Funds and the UK department for International development provided £240 million in anchor capital (split 50/50) to the Green Growth

Equity Fund, a newly established fund aiming to raise a total of £500 million to invest in power, distribution infrastructure, and energy services in India.

The Green Growth Equity Fund is managed by EverSource, a joint-venture between Everstone, an Indian investment management firm, and Lightsource

BP, a global renewable energy developer partially owned by oil major BP.

The appointment of the fund manager was on a competitive basis. The fund is also set up as an alternative investment fund under SEBI regulations (Eversource Capital 2018). • Affordable housing. In October 2018, the Fund of Funds committed to a

US$100 million investment in a US$650 million new affordable housing fund launched by HdFC Capital, the investment arm of India’s largest housing and mortgage finance company, Housing development Finance Corporation. • Other core infrastructure verticals, social infrastructure sectors, such as primary and secondary health care, and digital infrastructure (for example, data centers). at the time of this report, the Fund of Funds is looking for fund management partners for these sectors.

Strategic Opportunities Fund strategy

The Strategic Opportunities Fund seeks to invest in assets and businesses in the infrastructure and associated sectors that may require a longer investment horizon.