SWFs and Strategic Investment Funds are well-positioned to deploy institutional capital for real sector deals and projects due to their hybrid public-commercial nature.
Speaking at the 2023 Annual Meeting of ASIF in Kigali, Rwanda, Solomon Quaynor Vice President for Private Sector, Infrastructure and Industrialisations at the AfDB said the continent’s SWFs could play a pivotal role in helping unlock the over $2trillion in institutional capital held by African pension funds, insurance firms, sovereign wealth funds, and other long-term institutional asset managers. These vast assets can be deployed to drive and complement strategic economic transformation investments in the continent. However, they remain mostly locked up in risk-free government bonds and treasuries and other fixed income instruments.
According to Mr. Quaynor, SWFs and Strategic Investment Funds are well-positioned to help catalyze the deployment of such institutional capital for real sector deals and projects. SWFs can play this role because of their hybrid public-commercial nature which gives them the ability to appreciate both the risk priorities of institutional asset owners and the strategic investing opportunities for which capital could be safely deployed.
He cited the example of InfraCredit – a platform created by Nigeria’s Sovereign Investment Authority (NSIA) as a good illustration of what could be possible. InfraCredit was designed to make it attractive for long-term institutional investors like pension funds and insurance firms to invest in credit worthy and viable infrastructure assets in Nigeria. It achieves this by providing “local currency guarantees to enhance the credit quality of debt instruments issued to finance creditworthy infrastructure assets in the country”, thereby serving as a “catalyst” that unlocks risk-averse institutional capital for more impactful infrastructure investments.
He said that if more of such platforms were created by the continent’s SWFs, it would create an incentive for regional multilateral banks like AfDB to consider supporting such initiatives with their balance sheet.