India’s NIIF puts the ‘public’ back in PPP

The arrival of OTPP and AusSuper to the government-backed fund is another milestone in India’s evolution into an institutional-friendly infrastructure market.

When we held our second India roundtable last year (our first was in 2011), we heard a frank admission from Deepak Bagla, managing director of Invest India, the national investment promotion agency.

“What was happening with the PPP structure in India was one of the ‘Ps’ was not playing its role properly,” Bagla outlined. “That was the public aspect, the private guy was already there. Today, the other ‘P’, the sovereign, has started playing the role it ought to have played earlier. That is what the government has brought to a large extent and that is where you’re seeing the high level of interest coming into India.”

With the government’s creation of the National Investment and Infrastructure Fund at the end of 2015 – which it seeded with $3 billion and maintains 49 percent ownership – it may have stumbled upon the perfect way to marry the public and the private. That became clearer following this week’s arrival into the fund of AustralianSuper and the Ontario Teachers’ Pension Plan.

The two pension funds, among the world’s largest, each agreed to invest $250 million into the NIIF’s Master Fund, while also each agreeing to commit $750 million into future co-investment opportunities. The move marked both institutions’ entry into the Indian infrastructure market.

The commitments bring the total assets under management in the rupee-denominated Master Fund to $1.8 billion (out of a revised $2.1 billion target) and co-investment capital to $2.5 billion. The Master Fund, designed to invest in sector-specific platforms in India’s core infrastructure market, had previously garnered commitments from Indian institutions, Singaporean sovereign wealth fund Temasek and the Abu Dhabi Investment Authority, which committed $1 billion.

OTPP and AusSuper’s arrival, though, marks a step change from local money and sovereign wealth funds, which are perhaps partially motivated by soft power considerations. It’s an affirmation from large foreign institutional investors that the NIIF is doing things right and has created a sustainable and attractive model.

The existing investments in the NIIF’s portfolio – including road platform Roadis, with PSP Investments; a ports platform with Dubai’s DP World; and a 49 percent stake in GVK’s airport business – probably helped comfort the duo. But chief executive Sujoy Bose told us in March that investors have been equally attracted by the deals the NIIF hasn’t done.

“One thing that investors really like is that we have lost bids, which shows that we have discipline in the way we invest, instead of just doing any deal that comes along,” he explained, highlighting how the NIIF lost out to Macquarie last year in a bid to operate nine toll roads.

As it stands, the NIIF is a clear example of the catalytic role government can have. As governments in the West tie themselves in knots over how to fund infrastructure, balance the books and attract private investment, the Indian government has, in just a few years, come up with a viable model that attracts investors and delivers vital infrastructure funding.

Its halo effect is sure to help some of the other managers eyeing the region, even if they are blue chips in their own right. At the time of writing, Global Infrastructure Partners is thought to be considering the launch of an Indian infrastructure fund after its acquisition of IDFC Alternatives last year, while Morgan Stanley is raising around $750 million for its country-focused vehicle.

We wrote last year that, despite its problems, India’s evolution into an institutional-friendly infrastructure market was a new development. This week’s commitments mark another milestone in that evolution.

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