concentrated in equity investments in advanced economies by a few leading institutions in a few countries (notably Australia and Canada). Relatively little of this is in ‘greenfield’ investments. However, some international institutional investors have started to seek out infrastructure investment opportunities in EMDEs, although largely in upper middle income economies.<sup>7</sup> 6. Another potentially important and growing source of long-term capital is the assets of EMDE institutional investors in their domestic economies. Arguments in favor of greater domestic investment in infrastructure by EMDE institutional investors include the contentions that such investment can reduce foreign exchange exposure and risks, are more stable and contribute to economic growth and development not only via infrastructure improvements, but by increasing savings and developing the local financial sector and capital markets. That said – the governance arrangements around such domestic investment needs to be carefully structured to ensure that it is made on a financial basis and that political interference and other conflicts of interest are avoided.<sup>8</sup> 7. These domestic institutional investors come in many forms and the importance of different groups varies by country. Many EMDEs are currently reforming and developing their pension systems to introduce funded pillars. Establishment of mandatory funded pension schemes can often enable rapid growth of assets under management to a large percentage of GDP. Experience of infrastructure investing by pension funds is most widespread in Latin America<sup>9</sup> but there are also some early examples in Asia and Africa. At present, the bulk of pension assets in EMDEs consist of social security (centrally run by government) and/or public sector pension funds.

8. The assets of insurance systems can also accumulate to a significant percentage of GDP in EMDEs. Examples of domestic insurer infrastructure investments can be found, for example, in investments by South African insurers in the Pan African Infrastructure Development Fund or the South African Infrastructure Fund (Chukun 2010). In their survey of Africa, Irving and Manroth (2009) also found national insurance assets invested in telecoms equity in Cape Verde and telecom bonds in Mozambique. There are other countries with similar investments in domestic infrastructure stocks and bonds.

9. Sovereign Wealth Funds (SWFs), based either in developed economies or EMDEs, are another potentially major source of infrastructure financing. New funds are being set up in natural resource rich countries such as Angola, Nigeria, Gabon, Mauritanian, Chad, Equatorial Guinea and Ghana – often with the specific intention of investing in infrastructure.<sup>10</sup> Chinese funds have also been involved in a large number of ‘infrastructure for resources’ deals brokered in Africa.<sup>11</sup> 10. Table 1 provides an overview of the current institutional investor assets under management (AUM) in EMDEs. Estimates of their current allocation to EMDE infrastructure are given and some idea of the potential size this could increase to. More work needs to be done in this area, but some sense of how

> 7 For further details see OECD’s annual survey of pension funds (OECD 2013).

> 8 These considerations are behind the on-going debates around sovereign wealth funds (SWFs). There are different views as to whether SWFs should invest domestically or abroad, and if they do invest domestically, whether this should be undertaken via the budget process. These are important issues but beyond the scope of this current paper.

> 9See (BBVA 2010 +2011) and World Bank (2012).

> 10 Infrastructure deals have so far been limited to the major funds. For example, the Libyan Investment Authority was previously active in African projects, including frontier markets such as Somalia or Sudan. Given the commercial risk of such investments, they would appear to have been largely politically motivated. Lin and Doemeland (2012) note that the Qatar Investment Authority plans to invest US$400 million in infrastructure in South Africa.  These funds differ from traditional SWFs that attempt to serve a domestic development mandate in addition to a financial mandate and therefore invest in domestic infrastructure. 11 Lin and Doemeland (2012) cite the examples of the China-Africa Development Fund, an equity fund that invests in Chinese enterprises with operations in Africa, which reportedly invested nearly US$540 million in 27 projects in Africa that were expected to lead to total investments of US$3.6 billion in 2010.  See also Orr and Kennedy, (2008).

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