IFC mobilized more than $1.9 billion in private investment for infrastructure projects in FY16 © CPFL
In most developing countries, basic infrastructure is failing, insufficient, or non-existent—compromising livelihoods and holding back economies. An additional $1 trillion a year in infrastructure investment is needed just to keep pace with expected population growth, particularly in emerging-market cities.
Where can this needed funding come from? Governments cannot afford to scale up infrastructure spending through tax revenues and aid alone. Private investment continues to be far below the required level as a result of the risk profile of large infrastructure projects, particularly in developing countries with changing regulatory regimes. At the same time, many institutional investors are looking for stable, long-term debt yields to match their long-term pension and other obligations that infrastructure project loans could provide.
Closing this gap represents a major development challenge—one that requires innovative solutions and strong partnerships.
IFC has stepped up to the task. We have launched a new syndications program that aims to raise $5 billion from institutional investors over the next five years, allowing them to co-invest with us in power, transportation, and telecommunications projects in emerging markets. IFC originates the deals and manages the portfolio of loans that will mirror our own portfolio in infrastructure.
The first partner in the Managed Co-Lending Portfolio Program for Infrastructure (MCPP Infrastructure) is Allianz, and we anticipate other large insurance companies to join shortly.
“Modern infrastructure is essential for economic growth and lasting prosperity. MCPP Infrastructure marks a breakthrough in the search for large-scale financing solutions to the challenges of development,” said IFC Executive Vice President and CEO Philippe Le Houérou. “It is a key building block in the global effort to move from billions to trillions in development finance.”
The private sector accounts for less than a third of global infrastructure spending. Pension funds and other institutional investors are increasingly interested in expanding their exposure to large infrastructure projects, which offer steady, long-term returns in an era of ultra-low or even negative interest rates. But high-quality projects can be hard to identify, and new and changing regulatory environments can be difficult for institutional investors to evaluate.
“We work to ensure that our activities are profitable and sustainable. The partnership with IFC and our co-investment in infrastructure is a perfect example of how Allianz can provide thought-leading investment expertise to support the economic development of emerging countries as well as serving the interest of our customers,” said Oliver Bäte, CEO of Allianz SE.
With support from the Swedish International Development Cooperation Agency (Sida), IFC will provide a limited first-loss guarantee on investments, to meet the risk-reward profile that institutional investors require.
MCPP Infrastructure builds on IFC’s Managed Co-Lending Portfolio Program, a loan-syndications initiative that enables other investors to participate passively in IFC’s senior loan portfolio. Launched two years ago in partnership with China’s State Administration of Foreign Exchange (SAFE), the program has committed more than $1.6 billion in 47 projects across 30 countries—demonstrating how large investors can benefit from delegating the processes of deal origination and approvals to IFC.
To learn more about IFC’s work in Infrastructure, visit: www.ifc.org/Infrastructure.
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Published in October 2016