1234 GMT October 23, 2018
The scheme, led by the International Finance Corporation, a sister organization of the World Bank, is seeking to help plug the gap between the $2 trillion investment it says global infrastructure needs each year, particularly in developing economies, and the $1 trillion the sector receives, FT reported.
To do so, it is enticing funds from the $86 trillion asset management industry. This leading source of capital has traditionally steered clear of emerging market infrastructure, with its often higher political and project risks than similar investments elsewhere.
While the IFC has a history of working with banks as co-investors, the program seeks in particular to enlist funds from private sector insurance companies — as well as more traditional sovereign investors.
Hua Jingdong, IFC vice-president and treasurer, told the Financial Times that the program had raised $6 billion, with almost $3.5 billion already approved for 87 infrastructure and financial investments in 39 emerging market countries, since its 2013 inception. The IFC had not previously provided these details.
“Now the momentum is really building in terms of private sector money wanting to join the scheme,” Jingdong said.
Axa, the French insurance firm, is in final negotiations to pledge $500 million while another large institutional investor is preparing to announce its participation, IFC officials said.
These follow allocations of about $500 million each from Prudential, Allianz, Munich Re and Liberty Mutual since 2013.
The IFC has sought to alleviate risks to insurers by promising to absorb a limited amount of the losses that co-investors may encounter. This provision is provided by the IFC in co-operation with the Swedish International Development Cooperation Agency.
In many cases, the guarantee can bring an infrastructure project in an emerging market to within a risk profile permitted by insurance companies’ investment covenants, analysts said.
Allianz, the German insurer, said in a statement that the provision allowed its “investments to meet the risk-reward profile that institutional investors require”.
In addition to the funds pledged by insurance companies, the program was supported at the outset with a $3 billion allocation by China’s State Administration of Foreign Exchange, the subsidiary of the Chinese central bank that controls foreign reserves.
The Hong Kong Monetary Authority has also put in $1 billion.
Overall, the IFC lends and invests about $20 billion a year to about 100 EM countries, Jingdong said. Of this, about $12 billion comes from its own balance sheet and just over $7 billion comes from third-party commercial co-investors.
“We would like to ramp up that $7 billion to a much bigger number,” he said.
But big inflows from private sector investors would require the IFC to bolster its capital base.
“Investors appreciate our record in emerging market investing but won’t join these platforms unless IFC is also committed to the deals with its own balance sheet and capital,” Jingdong added.