Priority of Governments the World Over—Institutional Investment into Infrastructure

Abstract

Abstract Governments desire institutional investment (from pension, insurance, and sovereign wealth funds) in infrastructure rather than bank financing, which is the predominant means of financing infrastructure debt. Institutional investment into infrastructure does not suffer from asset–liability mismatch issues, which is typical of bank financing of infrastructure. Infrastructure investments should also be attractive to institutional investors given that they provide long-term steady returns, which have low correlation with business cycles. For example, pension funds and insurance companies hold more than 90 per cent of the stock of infrastructure bonds in Chile. However, in India, institutional investors have not been investing much in infrastructure. The chapter explores the reasons for this, and also suggests policy measures, including the need for a specialized credit enhancement company for infrastructure bonds, for domestic institutional investors to invest in infrastructure (as foreign, mainly Canadian pension funds, are already major investors in Indian infrastructure). This chapter also discusses the importance of infrastructure projects aligning with the environmental, social, and governance (ESG) norms increasingly being used by these investors for their investments. In this context, the chapter discusses the role of India’s own sovereign wealth fund, the National Investment and Infrastructure Fund (NIIF), to facilitate institutional investment into infrastructure.