Multilaterals and Infrastructure Funds: A New Era

Abstract

Multilateral development finance institutions (MDFIs) are increasingly looking to private-equity style infrastructure funds as a new vehicle for investing in emerging markets infrastructure. Since the late 1980s, 14 MDFIs have developed private equity fund investment programs, of which at least five have emphasized infrastructure fund investments, namely, African Development Bank, Asian Development Bank, Inter-American Investment Corporation, Islamic Development Bank, and Multilateral Investment Fund. This article explores several rationales provided by MDFIs for their investments in private infrastructure funds, including positive multiplier effects, efficient capital deployment, political risk cover, deal flow agglomeration, and encouragement of clean energy. It also reviews the preferences of MDFIs in manager selection, fund management, and fund creation practices, as well as some of the challenges faced by MDFIs in building up private infrastructure investment programs. Finally, the article raises a number of questions concerning performance, social and environmental safeguards, and developmental impact.

TOPICS: Portfolio construction, portfolio theory