IFC Guides SWFs to the Investment Frontier

Ashby Monk

The International Finance Corporation (IFC) has just announced that it is launching a new $800 million “IFC African, Latin American, and Caribbean Fund”, which will be managed by IFC Asset Management Company. A member of the World Bank Group, the IFC is one of the few international financial institutions that focus exclusively on bolstering the private sector in the developing world.

What I find interesting about this fund is the divergent interests of the various limited partners. As part of the deal, the IFC has itself committed $200 million. And other LPs apparently include the Dutch pension fund PGGM, the Korea Investment Corporation; the State Oil Fund of the Republic of Azerbaijan, and an anonymous fund from Saudi Arabia. So, we have a private sector pension fund with explicit liabilities (PGGM), a reserve investment corporation (KIA), a commodity fund (SOF), and a secretive Middle Eastern fund (SAMA or PIF).

These investors represent a diverse set of institutional objectives and constraints, which tells me one thing: this new fund is purely about making solid returns in the developing world. Investors such as PGGM can’t play around too much with “double bottom line” investing in places like Africa. As such, the IFC has managed to convince each of these investors that it will sniff out legitimate investment opportunities in some of the most difficult investment environments in the world. That’s great news. I’m a big fan of the IFC and its mission: they are funneling investment capital into the ‘frontier markets’ that need it most.

But, alas, it’s not all good news, I’m afraid. If I’m not mistaken, this new fund is a rebranded version of the “IFC Sovereign Fund Initiative”, which was originally meant to be a $1 billion equity fund that would facilitate investment in the same regions. So, this latest announcement suggests to me that the IFC fell well short of its original funding target. Apparently, World Bank President Robert Zoellick has some additional work to do to convince the world’s investors that “…developing countries have high-quality investment opportunities…”

I’m not really sure why, though. The IFC has a remarkable track record. Its average internal rate of return over the past 20 years has exceeded 20 percent! As this illustrates, where there is risk (…and there is plenty of risk in places like Africa…), there are plenty of opportunities for return! Now, if we could just convince Norway to get involved…many more would join in.

4 Responses to “IFC Guides SWFs to the Investment Frontier”

  1. 1 rien huizer April 13, 2010 at 3:20 pm

    “investors such as PGGM can’t play around too much with “double bottom line” investing in places like Africa.” Not too much? not at all!. Still one wonders how one will be able to make money while neo-imperialistic investors like the Chinese are prepared to accept a more “strategic” risk/return ratio. Interesting.

  2. 2 Ashby Monk April 13, 2010 at 3:30 pm

    Really good question; China has the advantage in that scenario for sure.

  1. 1 Economics news headlines | Money Supply | FT.com Trackback on April 14, 2010 at 8:03 am
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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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