As the Indian infrastructure market heated up again in recent months, a new fund manager quickly gained prominence: the National Investment and Infrastructure Fund.
The institution has proven difficult to categorise due to its dual nature: a sovereign-backed, independently managed GP, with the mission to attract billions of dollars into India’s emerging infrastructure market. It is a unique experiment in the private equity world, and India’s boldest gamble to boost the sector.
During the last year, the fund manager has ramped up its involvement, acquiring a 500MW renewables platform, teaming up with Canada’s PSP Investments to launch a $2 billion joint venture, buying the infrastructure financing arm of IDFC and securing a stake in Mumbai International Airport’s operator.
Amid this spree of announcements, it seemed a good time to sit down with Sujoy Bose, managing director and chief executive of the institution.
We met Bose on a chilly spring morning in Berlin, in a trendy cafeteria that feels a world away from India’s warmth and hustle. But low temperatures outside don’t seem to cool Bose’s confidence in the country’s infrastructure opportunity.
“India is by far the friendliest market for infrastructure investors outside the OECD markets,” Bose asserts. His pitch: if infrastructure investors want to move out of the developed world, their first stop should be India. And in the NIIF, they have the ideal partner to enter the market.
“The NIIF’s most important [role] is to be catalytic in crowding in international capital into the Indian infrastructure sector,” he says.
Since his election in 2014, Indian prime minister Narendra Modi has launched a raft of measures hoping to attract international players to the country’s infrastructure market. They include asset recycling programmes, new tools to invest in infrastructure and a more robust bankruptcy law, which has exposed distressed assets in several sectors.
As one of these reforms, the government announced the NIIF’s creation at the end of 2015, recruiting Bose to lead it. With over 25 years of experience in the International Finance Corporation – including a stint as chief investment officer of its $1 billion Africa, Latin America and Caribbean Fund – Bose seemed a perfect fit for the new venture.
“India is by far the friendliest market for infrastructure investors outside the OECD markets”
After setting up the GP, and with the right direction in place, New Delhi injected $3 billion as anchor investor in 2016. NIIF then set out to attract at least another $3 billion through three different vehicles.
“The government is very aware that, as the country grows, and as infrastructure needs become larger, it is crucial to get private capital into the sector,” says Bose.
As most Indian savings are directed to fixed-income and debt products, it’s clear that “a substantial part” of equity capital must come from abroad, he says.
India is one of the world’s fastest-growing emerging markets, but it also faces a tremendous infrastructure gap. The country is expected to invest $3.9 trillion in infrastructure between 2016 and 2040 under current trends, but the country actually needs up to $4.5 trillion to fulfill its infrastructure needs, according to a joint report by G-20-backed Global Infrastructure Hub and Oxford Economics.
The country must spend $1 trillion by 2030 just to provide universal access to electricity, the report says.
NIIF expects to narrow this gap by creating platforms “that can be partly owned by other investors”, thus attracting foreign capital.
“We are trying to create partnerships where we combine the right assets with the right expertise, with long-term capital and the right governance, so they are built to stay,” he says.
According to Bose, the launch in April of a road platform with Roadis, a highway operator owned by Canadian pension fund PSP Investments, was “a step in this direction”.
The firms are aiming to invest up to $2 billion in operational road assets in the country through the joint venture, and NIIF expects to offer co-investment opportunities to LPs in its Master Fund.
PSP Investments is not the only institution that saw NIIF as the right long-term partner to grow in the region.
“We are trying to create partnerships where we combine the right assets with the right expertise”
Rohit Anand, director of infrastructure equity at CDC, tells Infrastructure Investor it sees NIIF as a like-minded investor. In March, it invested alongside fund manager Eversource Capital in Ayana, an Indian renewables developer launched by development finance institution CDC group.
“For both of us, infrastructure is important, we are both long-term investors and we are looking to help build businesses the right way. We have a similar way of thinking,” Anand says.
He says that CDC decided to team up with the fund after learning more about the organisation and its team. “After working closely with the management team, understanding their culture and their way of working, we were comfortable that they were the right partner for Ayana,” he says.
Bose explains the government-backed manager has an AUM of $4.5 billion through co-investment strategies and the blind-pool funds being raised (including the $3 billion seed investment from the Indian government).
The NIIF runs three vehicles: a fund of funds, aiming to raise $1 billion; the Strategic Investment Fund, focused on growth and development opportunities, with a target of $3 billion; and the $2 billion Master Fund, which is intending to create joint platforms to invest in core infrastructure assets.
After receiving a commitment from the government in 2016, the fund manager moved on to attract capital from the four Indian private financial institutions: HDFC Group, ICICI Bank, Kotak Mahindra Life Insurance and Axis Bank.
“We had to start with people who were familiar with the structure and willing to support NIIF in its start-up phase,” Bose says.
The GP then managed to attract some high-profile international investors from Asia and the Middle East. While the Asian Infrastructure Investment Bank contributed $100 million to the fund of funds strategy, Singapore’s state investment company Temasek and the Abu Dhabi Investment Authority decided to become limited partners in NIIF’s Master Fund. ADIA, specifically, contributed $1 billion to the fund after an “extensive process of collaboration,” Bose said at the time of the announcement.
The institution wanted to start raising capital among players “that understood what [NIIF] wanted to do, liked the strategy, the team and the governance,” he explains.
Asked whether the firm should be raising capital at a higher speed, Bose makes clear they are not in a hurry when it comes to expanding its AUM.
“We expect to reach the $6 billion goal in the next 24 months, but we will take our time and be very deliberate about how we raise money,” he says.
Bose explains that the institution wants to be “very deliberate and careful” about the investors it brings in. The government holds a 49 percent of the fund manager, while the rest is owned by LPs in its Master Fund.
“We are looking for investors who can take large, long-term exposures, and who understand infrastructure investing,” he says.
The chief executive also argues that as investors get to know the manager better, pension funds, insurance companies and similar investors will become attracted to it.
“We will take our time and be very deliberate about how we raise money”
“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 explains.
One of those losses was a bid to operate nine toll roads tendered by the National Highway Authority of India in 2018, won by Macquarie Infrastructure and Real Assets. Another was its proposal last March to operate six airports across the country, alongside the operator of Zurich’s international airport.
As we speak, Bose is also keen to clarify another point that might be of concern: the role the government plays in the GP’s investment decision process.
The funds’ investment committees comprises members of NIIF’s senior management and, in the case of the Master Fund, also an independent advisor. The institution declined to provide the exact list of members sitting on the IC but stressed that neither the government nor any other investor in their funds is represented on it.
Ultimately, Bose believes that investors will look at NIIF as they hunt for opportunities outside of developed markets.
“We are [aiming] to generate returns over time, and I have no doubt that, as time goes by […] we will become the ideal counterparty for many pension funds that might not be able to create their own team in India,” he adds.
Bose stresses that the large pipeline of assets being monetised at the moment by the government and domestic companies, and its long track record in the PPP sector, makes India a very attractive market.
The NHAI has started a programme to monetise 105 roads with the aim to raise up to $20 billion, while the country’s airports authority moved on with the privatisation of six airports in February.
“We are looking for investors who can take large, long-term exposures, and who understand infrastructure investing”
“Policymakers understand that there’s a very strong appetite for recycling operational assets, private or public,” Bose says.
“This asset recycling can lead to capital coming in, releasing stress from the balance sheet from the government and the private sector, allowing them to focus on building more assets and then recycling them out creating a virtuous cycle,” he adds.
Asked about the risks often associated with investing in an emerging market, Bose argues that the higher returns generated help offset that. “If [investors] are getting mid-single-digits returns in an asset in OECD countries, and they get mid-teens in India, country risks and currency risks are compensated.”
Furthermore, he brushes aside possible political bumps in the world’s largest democracy.
As we spoke, India was gearing up to embark on a month-long election process, with more than 900 million people going to the polls. The incumbent Prime Minister, Narendra Modi, seen as a business-friendly figure, was finally re-elected for another five-year term at the end of May.
But Bose tells us that the push to develop infrastructure in the country is bound to continue, regardless of the colour of the government.
“We are dealing with the aspirations of 1.2 billion people. Building and developing world-class infrastructure is going to be clearly a mandate for any government,” he says.