Canadian Investment Review

Bill Gates Loves Sovereign Wealth Funds

Written by Ashby Monk on Thursday, September 29th, 2011 at 3:10 pm

BillGatesAs I’ve noted previously (e.g., here, here, and here), there is a growing interest in the role that sovereign funds can play (and have played) in facilitating economic growth in the developing world. The latest high-profile individual to gravitate to the idea of leveraging the capital in SWFs for development is none other than Bill Gates. In a “Technical Note on the Report of Bill Gates to the G20 on Financing for Development”, Gates’ thoughts on the value of SWFs for development are clear (see page 6 of the document). Here are some blurbs:

“…there is an opportunity to scale up their investment in poor countries’ infrastructure in a big way, beyond the helpful but limited initiatives so far, and provide a core of financing which will also bring in greater private sector investment.”

“An infrastructure fund financed by just one percent of SWF assets would start at $40 billion, and could reach $80-100 billion or more with projected growth over this decade.”

“There is a compelling reason to find smart ways to tap this pool of global savings for development, and especially for infrastructure as the backbone of growth and poverty reduction.”

So true, Bill. Unfortunately, there are many, many challenges to overcome, which is why these investors (who want to invest in infrastructure) aren’t investing in infrastructure. (Read this for details.) There are internal constraints (e.g., governance, human capital, risk management, etc.) and external (political risk, agency costs, commercial orientation of governments, etc.). It’s a hugely complex undertaking.

Ideally, I’d like to launch a multi-year project focusing on all aspects of this problem — from organizational design and financial management to project management — to develop real-world solutions that facilitate institutional investment in infrastructure in the developing world. That’s really why I came to Stanford University: To try to understand the constraints and challenges associated with unlocking these ever-growing pools of financial capital for the purpose of infrastructure investing!

Alas, funding is scarce these days, so my time often gets redirected to better-funded research projects. If only there was a philanthropic organization interested in this topic that could give big research grants of the scale required to figure out these intractable infrastructure issues…

This post originally appeared on the Oxford SWF Project.

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