norman chan : hong kong's pivotal role in infrastructure financing keynote speech by mr norman t l chan, chief executive of the hong kong monetary authority, at the forum - cum - dialogue on “ belt and road initiative : infrastructure financing ”, hong kong, 15 october 2018. * * * carrie ( leung ), susie ( cheung ), tony ( neoh ), distinguished guests, ladies and gentlemen, 1. i am pleased to be invited to attend today ’ s forum. before i talk about what role hong kong can play in facilitating the financing for infrastructure projects, it would be useful if i refer to the enormous gap between the gigantic funding needs of infrastructure projects in the emerging market economies ( emes ) and the huge pool of global capital looking for investment opportunities. 2. it is beyond doubt that many emes do have a desperate need to bring in foreign investments in infrastructure, such as power plants, ports, airports, roads, railways, etc., all of which will certainly help them raise not only their living standards but also their capability in production and external trade. there is also no doubt that on the other side, there are billions or trillions of dollars eagerly looking for investment opportunities, especially those that can bring in steady long - term returns to the investors. when i ask investors or bankers why they are not putting their money into infrastructure projects that are waiting to be built and financed, the answer is there is a lack of “ bankable ” or “ investible ” projects. this may well be the true answer or reality, but it is rather disappointing if not frustrating that the wide gap between demand and supply has continued to exist. 3. so the natural question for us would be how we can close that gap and bring about a winwin outcome for project proponents and operators on the one hand and financiers or investors on the other. and in this connection, i should say that hong kong is uniquely well positioned to play a pivotal role in facilitating and catalysing investment flows to infrastructure projects in the region. we have well - developed capital markets and a deep pool of professional talents, in addition to hong kong being a leading centre in arbitration and dispute resolution, all of which are essential building blocks in support of infrastructure investments and their financing. it was against this background that the hkma set up the infrastructure financing facilitation office ( iffo ) in july 2016. iffo has the following mission : ( a ) provide a platform for the key stakeholders to

and experience, and the track record of the asset manager is a key assessment criterion of rating agencies as well as prospective investors ; the risk appetite of many long - term investors may need to adjust over time. over the past few years, we have seen an increasing interest among conventional long - term investors like pension funds and insurance companies in infrastructure - related ( d ) assets, possibly because the conventional fixed income instruments have failed to provide a decent return amidst the long - depressed yield environment. however, the appetite of such investors tended to focus on the small set of prime quality, investment grade - tranche of infrastructure loan assets, whereas many infrastructure loans may fall in the sub - investment grade domain. 8. ladies and gentlemen, the reputation of financial derivatives was badly damaged during the global financial crisis. the mortgage - backed securities, cdo, cdo2 and cdo3, etc. all got a bad name, for good reasons. while there are still widespread skepticism and even resentment to the label of financial derivatives or financial engineering, i think it is important for us to be able to differentiate between those structured finance products that are linked to and supportive of the real economy from those that have no useful links to the real economy. clearly ordinary mortgage - backed securities with proper underwriting standards, not the kind of sub - prime mortgages in the us, are one of this kind of useful financial derivatives. infrastructure loan backed securities can be another kind of useful structured finance because, if properly organised, they can bring about a win - win outcome for the investors, the recipient countries, the intermediaries and the capital markets. as i said earlier, infrastructure investments are one of the most difficult kind of asset class and to create a structured finance for these investments is not going to be an easy or short process, but as the chinese saying “ 千 里 之 行 ， [UNK] [UNK] [UNK] 下 ” goes, no matter how long the journey is going to take, one has to make a start somehow. so here we are, the hkmc is going to take the first step in pursuing the securitisation of infrastructure loans in order to facilitate a more efficient flow of capital into infrastructure investments. 9. i note that in the afternoon there will be a session focusing on the prospects of structured finance in infrastructure investments. this is highly relevant and timely and i look forward to hearing the perspectives and insights from the experts on this subject. finally, let me thank the forum for inviting me and wish all the participants a