BUS614: International Finance

The past 15 years have seen the rapid proliferation of strategic, government-sponsored investment funds that, in addition to generating returns for their investors, are tasked with catalyzing capital flows to priority sectors of national and regional economies. Their role goes far beyond the provision of public capital. Wellmanaged strategic investment funds (SIFs) can create opportunities for attracting private investment, deepening domestic capital markets, and building the capacity of governments to act as professional longterm investors. At their best, SIFs bring highly specialized and sector-specific expertise to the structuring and financing of investment projects. Their presence as co-investors provides some degree of implicit political and regulatory risk insurance for private investors, particularly for infrastructure projects, which are generally more exposed to sovereign risk. 

However, a review of the existing literature suggests that the establishment and operation of SIFs is not without challenges. Efficient operation of these funds requires a high level of fund management capacity, independence, and transparency. To be successful, SIFs need to balance policy and commercial objectives, source investment opportunities well, and secure the right staff. Although SIFs have been around for a few decades, they have not until now been the object of analysis in the literature. 

Section 2 proposes a definition and classification of SIFs based on their investment strategy. Section 3 identifies factors that may explain their recent proliferation, while sections 4 to 7 focus on their structure, strategy, role, and operations. Section 8 identifies common challenges and proposes possible solutions based on the experience of a wide range of existing SIFs. Section 9 concludes.

Source: World Bank, https://openknowledge.worldbank.org/bitstream/handle/10986/25168/WPS7851.pdf?sequence=5&isAllowed=y
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