Co-lending: a new road to emerging markets

IFC treasurer Jingdong Hua explains how institutional investors can help meet huge infrastructure needs – and make a profit.

Insurers, pension funds and sovereign wealth funds devote less than 1% of their assets to infrastructure debt in emerging markets. 

The gap between those relatively small sums and the more than $1 trillion developing countries in Asia and around the globe urgently need for essential roads, power, transport, and housing – to fight poverty, and offer alternatives to terrorism and mass migration of economic refugees – is enormous.

But it doesn’t have to be that way. IFC, part of the World Bank Group focused on the private sector, has stepped up to create a first of its kind, one-stop platform. We are enabling a growing number of investors to access and evaluate investments and allocate funds to emerging market infrastructure projects.

It is called MCPP – or the Managed Co-Lending Portfolio Programme. In June, it mobilised $500 million apiece from global insurers Eastspring Investments and Allianz Global Investors. In September, in an historic partnership with the Hong Kong Monetary Authority, the platform crowded in $1 billion to support IFC in financing projects across more than 100 countries. This signing with one of the world’s most respected institutional investors demonstrates MCPP as a mobilisation platform has wide appeal.

The development finance community must connect with institutional money in a new way to make that leap from the billions now invested in infrastructure in frontier markets to the trillions required. 

Facebook, Amazon and Alibaba prove that when you build a good platform, people come to you. Similarly, with MCPP we created a new platform that – despite its necessary structural and legal complexities – is very simple. It leverages IFC’s capabilities, giving institutional investors the opportunity to get cost-effective exposure to our unrivalled portfolio of assets. Investing on a portfolio basis helps investors diversify and manage risk while receiving the general risk and return profile of IFC.

We launched MCPP in 2013 with $3 billion from SAFE [China’s State Administration of Foreign Exchange] and the People’s Bank of China. The reputation of one of the world’s best managed funds impressed people but attracting more private investment has taken time. Private sector investors must overcome misconceptions, such as moving their frame of reference from equity to debt and the perennial concern emerging market credit must be much riskier than others.

Investing in emerging or frontier markets demands considerable knowledge and painstaking due diligence. However, partnering with IFC means institutions can take advantage of our six decades of on-the-ground expertise and investments in more than 100 markets. In asset management terms, this allows us to present a data driven story of our track record and actual experience in these markets. It also gives us unrivalled diversification.

Further, we think of infrastructure as a good investment. Infrastructure debt, and in particular infrastructure lending, traditionally benefits from careful structuring and strong security packages that help to mitigate risks and help with recoveries if something goes awry in an emerging market. Then once projects are built the risk profile changes and often improves. For this unique formula to work, we have spent a lot of time trying to understand country risk and structure risk. IFC grasps that different countries have diverse regulatory environments and operating structures.

MCPP allows investors to access this asset class in a cost-effective manner, while helping mitigate risks and demonstrating it can also offer an attractive risk reward platform. Now the platform concept is proven, investors are coming to us. We have replicated it to several insurance companies and more are coming on board. Since MCPP’s launch four years ago, we have received keen interest from the market, and doubled the financing available to $6 billion. With these resources, IFC can finance vital projects that will also help the poor.

I am confident institutional investors, with IFC’s help and guidance, will be willing to invest far more substantially in emerging market infrastructure – for the greater good of Asia, and for developing countries around the globe. 

Jingdong Hua is vice-president and treasurer at IFC, World Bank Group

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