World Bank’s new asset management division targets SWF co-investment

The World Bank has set up a new asset management division, IFC Asset Management Company, and a new private equity fund, specifically designed to facilitate co-investment by sovereign wealth funds in developing countries.

The new asset management company, a subsidiary of the International Finance Corporation, comes on the back of World Bank president, Robert Zoellick’s appeal to sovereign wealth funds (SWFs) last year to allocate 1 per cent of investments in developing nations.

At the time he said the World Bank Group would work with sovereign wealth funds to create a “One Per cent Solution” for equity investment in Africa.

“If the World Bank Group can help create the platforms and benchmarks, the investment of even 1 per cent of their assets would draw $30 billion to African growth, development, and opportunity,” he said.

The setting up of the new asset management division, and specific investment funds, is the first step in that process.

The new asset management company, a subsidiary of the International Finance Corporation (IFC), will manage assets of the $3 billion recapitalization fund, and a new $1 billion private equity fund that will allow national pension funds and sovereign funds to co-invest in IFC transactions in Africa, Latin America and the Caribbean.

Jyrki Koskelo, vice president for Europe, Central Asia, Latin America and the Caribbean and Global Financial Markets and Funds, said this was part of the initiative to create vehicles for SWFs to invest in emerging markets.

“SWFs may have been uncomfortable with the risks in emerging markets, but these vehicles give them confidence that they can invest in parallel alongisde the IFC,” Koskelo said.

“We have talked to quite a lot of SWFs, and other pension funds, and we expect the first fund to close at the end of the (northern) summer with about $1 billion.”

He said the IFC’s intention was to stimulate investment in these emerging regions not to act as competition to existing emerging markets funds managers.

“This is a new page for the IFC as an opportunity to invest more in the future. Our role is to convince others to start investing in the engines of tomorrow’s economy. Our intent is to stimulate, not to be in competition with private funds managers, the success depends on others too,” he said.

IFC Asset Management will be headed by managing director at Goldman Sachs in London, Gavin Wilson.

The IFC recapitalization fund, founded by IFC and the Japan Bank for International Cooperation in February, is a $3 billion global equity and subordinated debt fund that aims to support banks considered vital to the financial system of an emerging market country.

Designed to protect systematically important emerging markets banks from the effects of the global financial crisis, it made its first investment in late March, injecting $20 million into Paraguay’s Banco Continental. That fund has already pledged EUR2 billion as part of a joint effort with the European Bank for Reconstruction and Development and the European Investment Bank to support central and eastern European banks hit hard by the crisis.