IFC plans $1bn infra fund for ‘frontier markets’

The International Finance Corporation expects to sign on major LPs including sovereign wealth funds and large pensions for the fund, which will invest in projects as well as companies.

The International Finance Corporation (IFC), the private investment arm of the World Bank, is considering a $1 billion infrastructure fund that will focus on investments in “frontier” emerging markets, which exclude Brazil, India, Russia and China, according to a proposal on the organization’s website.

The fund, called the IFC Global Infrastructure Fund, will invest “across different regions, including middle income and low income countries”, according to the proposal.

IFC proposes to commit up to $200 million to the new vehicle, or 20 percent of the equity. The rest would come from “large global institutional investors” including sovereign wealth funds and pensions, according to the proposal.

So-called “frontier markets” generally include countries in Africa outside of South Africa and countries in Southeast Asia like Vietnam and Indonesia. If successfully implemented, the fund “should demonstrate that infrastructure investment in emerging markets, and particularly in non-BRIC countries, is commercially viable and attractive”.

IFC published a summary of the proposed investment fund on its website earlier this month. The IFC’s Board of Directors is expected to decide on the proposal on April 12.

In order to account for the “longer gestation periods” associated with infrastructure, the fund would have a longer investment period and investment holding period than a typical private equity fund. The fund would invest in projects but would also target investments in companies.

“Governments in emerging markets are increasingly turning to the private sector to develop infrastructure projects,” the proposal says, but the “availability of long term private sector equity capital for such projects is proving to be a constraint”.

The fund would be managed by IFC Asset Management Company, which was established in 2009 to manage funds with capital from outside IFC, with former Goldman Sachs investment banker Gavin Wilson as its head.

IFC Asset Management was responsible for managing the $3 billion IFC Capitalization Fund, which began in the wake of the financial crisis with a $1 billion commitment from IFC and a $2 billion commitment from the Japan Bank for International Cooperation. IFC Asset Management also manages the $950 million IFC African, Latin American and Caribbean Fund, which launched in April 2010.