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Attract Both Big and Small

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  25 March 2018 12:00 AM GMT

Taponeel Mukherjee

(Taponeel Mukherjee heads Development Tracks, an infrastructure advisory firm. Views expressed are persol. He can be contacted at taponeel.mukherjee@development-tracks.com)

As large institutiol investors with operatiol capacities plough money into Indian infrastructure, it is important that we also keep an eye on attracting the relatively small, non-operating investors as well. Mobilising capital from a variety of sources will be important for India to bridge the infrastructure gap.

Institutiol entities investing in infrastructure broadly fall into two categories: One, large institutiol investors with significant operatiol capacity and, two, relatively smaller investors with available capital but not the operatiol capacity or mandate. For example, a large investor might be willing to not just invest in a wind farm but also have the capacity to run the business. A smaller player may be interested in being a fincial investor, but without the capacity or mandate to operate the asset. To attract both types of investors, the government must create a policy and investment climate that is conducive for infrastructure investments.

Global institutions, it seems, are under-invested in infrastructure, a clear opportunity for India to attract global capital. The country needs to create a regulatory environment that can attract a significant portion of the additiol capital that will flow into infrastructure, especially from the relatively smaller investors.

Another interesting statistic: There has been a significant increase in direct infrastructure investments (as a percentage of the total pool of investable capital) by institutiol investors over the last five years, but the proportion of investors doing direct investments has decreased. The important takeaway is that though larger operating investors have increased their investments, a significant number of smaller investors have capital that they need to allocate through non-direct route which does not involve an operating role with respect to maging the asset. For operatiol or other reasons, these relatively smaller investors prefer non-direct investments with direct investing being done by large investors with significant in-house operatiol capacity.

The next question is: Just how big is the pool of capital available globally beyond the very large investors? A ranking by Investment & Pensions Europe (IPE) released in September-October 2017 and ranked the largest global institutiol investors in infrastructure threw up some interesting statistics. While the top 10 investors had approximately $170 billion allocated to infrastructure, they had approximately $3.9 trillion under magement. The investors from the 20th to the 60th positions in the ranking had $95 billion allocated to infrastructure while total assets under magement was approximately $3.8 trillion. What this shows is the significant capital pool that the relatively smaller investors have — and the challenges that exist in attracting that pool of capital due to fragmentation.

In a global economy with asset price volatility and shrinking central bank balance sheets, attracting global capital will be more challenging than usual.

Large, operatiolly-savvy investors are extremely important, but so are the non-operating fincial investors. A stable and efficient regulatory environment, along with efficient investment vehicles, will be the key to attract more global capital for Indian infrastructure. (IANS)

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