Developing countries and sovereign wealth funds ready for partnership on sustainable investment

Geneva, 15 October 2014 (UNCTAD press release) – Sovereign Wealth Funds Round Table

Executives of sovereign wealth funds (SWFs) and public sector pension funds see significant potential for long-term investment in sectors crucial for sustainable development, ranging from infrastructure to agriculture, energy, social housing, clean water and sanitation.

Policy makers and representatives of major SWFs and pension funds discussed the possible contribution of state-owned investment funds to the development agenda at a SWF Round Table, at the UNCTAD World Investment Forum on 15 October 2014 in Geneva, Switzerland.
Globally SWFs manage assets of more than $6 trillion, while public pension funds almost triple this figure. As investors with long-term investment horizons these funds are able to take on less liquid investments, such as those in infrastructure and public facilities, which are actively sought by many developing countries. However, only a small portion of this huge SWF ‘reservoir’ is currently dedicated to direct investment and many developing countries, in particular those in Africa, are still largely absent from the portfolios of these funds.

Often voiced concerns regarding the involvement of sovereign investors in sensitive public service related sectors were not forefront in recipient countries minds. HE Mr Anthony Hylton, Minister of Industry of Jamaica, remarked that “We are keen to attract investment in many sectors, including those most associated with sustainable development, from all investors. Also
from sovereign investors.” Executives from SWFs from China, Saudi Arabia and South Africa, as well as representatives of
public pension funds from Denmark and Norway, who attended the meeting pointed out that their long-term investment propensity was in line with the nature of development-oriented projects, and they were increasing their investment in sectors such as infrastructure and agriculture.

However, some barriers were holding backing SWF investment in key sustainable development sectors, notably in underdeveloped economies. The biggest hurdles cited included entry barriers in certain socially or politically-sensitive sectors such as agriculture; the lack of a stable and predictable investment environment in underdeveloped economies, and inadequate information on and effective packaging of investment projects in developing countries for potential investors.
Mr. Mohamed Hedi Mejai of the Islamic Development Bank said: “Project readiness is very important to compete with other, much easier investment options available to large investors.” Meanwhile, SWFs and pension funds largely remain portfolio investors, with limited capacity for direct investment, in particular in underdeveloped markets.

This is especially the case for small and newly-established SWFs. Executives from the Angola Sovereign Wealth Fund pointed out that the fund was mandated to invest 7.5 per cent of its assets in social development, and has set up funds dedicated to infrastructure and agriculture investment, but insufficient experience and capacity is a challenge in fulfilling these investments.
To bridge the gap between the financing needs of developing countries and potential of long-term investment by sovereign investors, policy makers and representatives of sovereign and public pension funds stressed the importance of innovative partnerships.

Collaboration could help in identifying and preparing bankable projects, and to commit more resources to public-private partnership (PPP) projects in pro-development sectors. Partnerships between newly created funds in Africa and Latin America and traditional ones to match money and local expertise could also help increase investment in the SDGs. A piece of advice offered to governments aiming to attract SWF and Pension Fund investment included initiatives to facilitate offices on the ground for investors. Mr. Javier Santiso of ESADE said “having teams on the ground can really facilitate more investment as it helps identify opportunities and hands on management.”