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MDBs play ‘key role’ in de-risking assets, unlocking capital

Multilateral development banks said at the UN’s second annual Global Infrastructure Forum they would work together to draw institutional capital to the asset class.

The world’s leading multilateral development banks agreed over the weekend to cooperate on making the infrastructure asset class more attractive to institutional investors.

The finance institutions met at the United Nations-backed Global Infrastructure Forum in Washington, DC to discuss ways to unlock the “trillions of dollars” of institutional capital that could be invested in infrastructure projects in developed and emerging markets.

This was the second annual forum where MDBs met to discuss how to increase global infrastructure investments. Participants included The World Bank Group, the International Finance Corporation, the European Investment Bank, the African Development Bank and the Asian Infrastructure Investment Bank, among others.

After the first Global Infrastructure Forum last year, the MDBs reported that out of $163.6 billion of private finance mobilised, $68.7 billion went to infrastructure in 2016. There exists more than $70 trillion in institutional investor capital and up to 3 percent of that would be enough to meet the infrastructure needs of emerging markets.

The MDBs said in a statement following the conference that infrastructure development is of “cross-cutting importance” to increasing economic growth.

“It is of key importance to develop bankable projects,” Morten Lykke Lauridsen, a senior economist at the International Finance Corporation’s Thought Leadership Unit, told Infrastructure Investor. “MDBs have a key role to play in de-risking and bringing in institutional investors.”

To do this, he said the IFC and others must do three things. MDBs must create policy environments that support commercially viable projects, encourage governments to structure attractive transactions and provide better data to help investors understand the risk profile of infrastructure assets in emerging markets.

Lauridsen said the IFC’s Managed Co-lending Portfolio Program is one example of how MDBs can attract capital to new markets. Launched last year, this facility draws in investor capital alongside IFC funds. To match the institution’s risk appetite, IFC and the Swedish International Development Cooperation Agency provide a first-loss tranche credit enhancement.”

Last month, Allianz Global Investors told Infrastructure investor was “very advanced” in closing a $500 million co-investment in the IFC’s platform, making it the first institution to set in stone a partnership with the MCPP facility.

“It is this kind of innovative product that can put more capital to use,” Lauridsen said.