Norway's $4bn development fund seeks Asia co-investment deals
Norfund, Norway’s $4 billion development fund, is seeking allocations to long-term infrastructure and other sectors in the Asia Pacific, as it positions itself as an attractive co-investor for sovereign, institutional and private sector capital.
“Public funding is a scarce resource, so the more we work with private markets, the more we can achieve. And we have significant competencies,” said Mark Davis, executive vice president at Norfund.
“This is not concessional funding, it’s not subsidised money. We don’t want to crowd out private investment, we want to crowd it in,” he told AsianInvestor.
Norfund
He noted that the fund had a deep expertise in private investment among the staff – a skill set that it seeks to bring to bear where possible.
From its Bangkok office, the fund targets financial services, funds and renewable energy opportunities in Vietnam, Indonesia, Bangladesh, Sri Lanka, Cambodia, Laos and Myanmar.
It also invests in Philippines, India and Nepal in partnership with strategic co-investors.
Currently 24% of Norfund’s $4 billion total portfolio is invested in Asia. In addition, Norway’s government provides it with annual funding, which last year supported new allocations of $601 million (of which $207 million went to Asia).
Recent Asia Pacific allocations include $9.2 million in AwanTunai, a Jakarta, Indonesia-based fintech company providing helping finance supply chain investments for small and medium enterprises in the fast-moving consumer goods (FCMG) sector.
The fund has no hard commitments for the duration of investments, freeing it up to be a long-term investor, Davis explained.
“We can be patient, some investments we’ve had for 15 years. Always the goal [is] to recycle the capital upon exit and re-invest; anything that flows back to us stays on the balance sheet,” he said.
Typical durations for direct energy-related investments were five to six years, while fund investments were typically 10 to 12 years for equities and less for debt funds, Davis added.
Direct equity allocations, which are capped at 35% of total project size, currently comprise 60.7% of Norfund’s total, with 23.9% allocated to loans and 15.4% equity allocations via funds.
The entire portfolio is spread across four themes: renewable energy, financial inclusion, scalable enterprises and green infrastructure.
“Most fund investments are not energy or climate-related, traditionally we have focussed on funds to get capital into smaller enterprises that are harder for us to reach, including in countries where the fund managers have [expertise],” said Davis.
Norfund, which employs 130 staff, plans to allocate $400 million per year globally, with its funding secured by the Norwegian government. Individual equity allocations by the fund are typically between $4 million and $50 million.
ASIA-FOCUSSED CLIMATE FUND
In addition to the $4 billion development fund, in 2022, Norfund was placed in charge of the country’s new Climate Investment Fund, a second development fund focussed on avoiding emissions in developing countries.
Seven of the eight countries where this investment fund is focussed, namely South Africa, India, Sri Lanka, Vietnam, the Philippines, Cambodia, Indonesia, and Bangladesh, are in Asia.
For the Climate Investment Fund, the typical equity interest is 20% to 35% of a project, and typical allocations are between $50 million and $150 million.
The addition of the Climate Fund mandate, has boosted an area on which Norfund already had a tight focus, according to Tellef Thorleifsson, Norfund’s CEO.
“The need for capital for renewable energy in these markets has grown further as a result of more expensive capital and high gas prices, and we see great opportunities to make a significant difference,” he said.
SECURE FUNDING
Helped by the annual injection of funds from the Norwegian government, Norfund’s investments have continued even at times when global investors have retreated.
In 2022, when the MSCI World index fell 18%, Norfund allocations were at their highest level on record -- $601 million -- a level that was maintained last year.
“In 2020, investments increased by 20%, in 2021 by 10% and in 2022 by another 20%,” said Davis.
In the energy sector, Norfund estimates that every $1 allocated by Norfund is matched by $9 from other investors, since projects in the sector typically employ leverage levels of around 80% bank debt to 20% equity.
Davis explained that the fund is “one of the biggest of the small” development funds, a group that includes those of Germany, the Netherlands, France and the UK’s $7.2 billion British International Investment, which Norfund most closely resembles in size and style.