**_Policy additionality:_** MDBs can assist the host nation to improve the policy and regulatory environment for investment, which are often the biggest investment barriers in emerging markets, via advisory services and technical assistance provided to borrowers.

**_Demonstration additionality:_** MDBs can demonstrate feasibility by backing projects that show the possibilities for successful investment in untested frontier markets.

**_Selection additionality_** : MDBs can support government entities in better project selection and preparation, thereby helping to prioritize projects with greater development, growth or climate impact. –.

Other incidental roles MDBs can play include advice on policy frameworks, advisory programs on building domestic capital markets and cross-border investment promotion.

_Source: (Chelsky, Morel, Kabir 2013) and authors_

# **IV. Examples of Institutional Investing in EMDE Infrastructure**

19. Private finance for infrastructure in advanced economies can come in different forms and vehicles. Figure 2 gives an overview of the main financing instruments (equity and debt), investment vehicles (publicly listed and private/unlisted), as well as of the various direct investment routes such as infrastructure stocks or private participation, corporate bonds or project bonds, direct loans, etc. It also gives examples of the indirect route via fund structures.<sup>17</sup> 20. Infrastructure ‘investment’ is a very broad term. In this paper, the main focus is on unlisted investments (i.e. investments in infrastructure debt or directly in project equity). Raising this form of capital (rather than by investing through the shares of listed construction, utility, and telecom companies) is the key to plugging the infrastructure financing gap.<sup>18</sup> In addition, unlisted investments can offer low correlations to other asset classes and illiquidity premiums with long-term pay-offs, which make them attractive to institutional investors.

> 17 It should be noted that this is a stylized representation. Capital substitutes that some investors are increasing willing to provide (such as insurance products, guarantees, credit enhancement etc.) are an important part of the picture, which need to be considered in addition to and combined with these basic instruments.

> 18 Investments in _listed equities_ of infrastructure companies are quite common not only in advanced but also in EMDEs. They include shares of large quoted utility and telecom companies that may have been (partly or fully) privatized, e.g. in Chile. Such stocks are typically a typical part of the mainstream equities allocation rather than a specific ‘infrastructure asset class’ (Inderst 2010, OECD 2013). They often also constitute a large part of pension funds’ investments in infrastructure overall, e.g. in Latin America (BBVA 2010, 2011). Similarly to listed equities, _corporate bond_ investments are often popular with local investors in many EMDEs. They include bonds of large quoted utility and telecom companies that may have been (partly or fully) privatized. They can be rated and traded, and are normally allowed in institutional investor portfolios. Such bonds are typically a part of the mainstream bond allocation. They often also constitute a large part of pension funds’ investments in infrastructure overall, e.g. in Latin America or Asian countries with relatively well-developed capital markets, e.g. Malaysia, Thailand and Korea. They are used by pension funds in Kenya and other African countries.

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