Looking for an investor with billions? Want to know where the money is? If you’re a country with a sound financial and political record seeking money for infrastructure, you can find it in the hands of “global public investors” (GPI’s), a growing group of little-known foreign investment vehicles on the prowl for safe investment opportunities.
My guest on this show is Vijaya Ramachandran, senior fellow at CGD, who contributed to a new new report from the Brookings Institute on GPI’s, a term the report authors coined to include such entities as sovereign wealth funds, foreign government employee pension funds, and foreign currency reserve funds.
The Brookings report is aimed at U.S. policymakers at the national and state level who are desperate to repair and improve aging infrastructure but face tight budgets and public resistance to raising funds through taxation. Nonetheless, says Vij, the report findings, especially new detail on the size and nature of GPIs, can be extremely valuable to developing countries, too.
Vij says that GPIs hold many trillions of dollars—dwarfing the $100 billion or so in Official Development Assistance (ODA) that rich countries provide to developing countries each year. “The amount of money sitting in sovereign wealth funds and other global public investor related funds is substantially greater than anything that is included in aid flows,” she says.
In interviews with GPI fund managers from around the world, Vij and her co-authors found that most were passive investors looking for conservative investments with stable and long-term returns. GPIs have invested in everything from grocery store chains to banks and manufacturing companies. Vij believes that developing country infrastructure—power, roads, ports, and rail, for example—could be highly attractive to these investors, if the proper legal and regulatory frameworks are in place.
“The GPIs want to diversify as their funds become larger and they themselves become more sophisticated investors,” says Vij. “Infrastructure projects – as relatively safe and low-risk opportunities – would be particularly good investments in both U.S. and developing world contexts.”
But coaxing billions from these careful investors won’t be easy for many developing countries with uncertain track records. “Many developing countries see these funds as natural sources of money,” says Vij. “But some governments will have to do a little bit more to signal low-risk to these investors.”
As we conclude, I ask Vij whether she thinks multilateral deliberations, such as the G-20 Seoul Summit, and the World Bank’s Multilateral Investment Guarantee Agency, have played a role in mobilizing GPI capital for developing country infrastructure. As Vij sees it, given the G-20 push for infrastructure to support economic growth, GPI’s should be attracting a lot more attention.
Listen to the Wonkcast to hear more on GPI’s and their exciting potential. Have something to add? Ideas for future interviews? Post a comment below, or send me an email. If you use iTunes, you can subscribe to get new episodes delivered straight to your computer every week.
My thanks to Will McKitterick for his production assistance on the Wonkcast recording and for drafting this blog post.