NIIF ( National Investment and Infrastructure Fund ): India’s Sovereign Wealth Fund

The National Infrastructure and Investment Fund (NIIF) is India’s first-ever sovereign wealth fund (SWF). The state-owned fund was set up by the Indian Government in the year 2015. The primary goal of setting up NIIF was to optimise the economic impact largely through investing in infrastructure-related projects.

What is a Sovereign Wealth Fund?

A sovereign wealth fund is a state-owned fund. An SWF is used to invest in capital assets such as real estate, metals, stocks, and bonds. SWFs also invest in alternative investments such as private equity funds and hedge funds. Some SWFs invests in the global avenues. An SWF is mostly formed from the country’s reserves. The main objective of the SWFs is to allocate funds for the betterment of the country’s economy.

History of NIIF

The Union Budget 2015-16 saw Arun Jaitley, the then Finance Minister, announcing the formulation of the NIIF, an alternative for providing long-term capital for the infra-related projects. The NIIF was allocated Rs 20,000 crore from the government.

The Department of Economic Affairs gave the state-owned fund the nod in August 2015 and obtained registration under the Indian market regulator the Securities and Exchange Board of India (SEBI) in December 2015 under Category II Alternative Investment Fund. As per the latest available data, the NIIF currently manages funds of worth more than USD 3.4 billion.

Objectives of NIIF

The NIIF invests with a long-term horizon. The following objective guides the investment philosophy of the NIIF:

• Commercial
• Collaborative
• Sustainable

Types of NIIF Funds

Currently, the NIIF is managing the Master Fund, Fund of Funds, and Strategic Fund. NIIF funds were found to primarily invest in the infra-related projects across the country by building the capital from both domestic and international investors.

1. Master Fund: This fund primarily invests in infra-related projects such as roads, ports, airports, and power. Also, the master fund invests in well-established enterprises that are into a long-term agreement and are operating in a regulated environment with a good history. This kind of businesses are believed to act as a hedge at tines of inflation and offers stable cash inflow. The master fund follows the strategy of establishing sector-specific companies in association with prominent companies to build a diversified portfolio.
2. Fund of Funds: Fund of funds looks to invest in funds managed by the renowned fund managers having an excellent track record. The fund of funds invests as anchor investors, and this enables the fund managers to accumulate more fund from the institutional investors. Fund of funds may also enter into joint ventures with the fund managers. The fund managers are selected based on their track record, investment strategies, and risk management.
3. Strategic Fund: This fund is registered as an Alternative Fund II under the Securities and Exchange Board of India (SEBI) in India. Strategic funds invest primarily in equity and equity-linked instruments.

NIIF Investors

The NIIF signed the first investment deal of worth USD 1 billion with the Abu Dhabi Investment Authority (ADIA) in October 2017. The ADIA became the first-ever international investor in the NIIF’s master fund. The Indian Government holds a 49% share in the NIIF.

Domestic investors such as ICICI Bank, HDFC Bank, Axis Bank, Kotak Mahindra Life are the other notable investors in the NIIF. The Asian Infrastructure Investment Bank in June 2018 announced to invest USD 200 million. They invested USD 100 million in June 2018 and said they would invest another USD 100 million on a later date.

NIIF Investments

The master fund, along with DP World invested in the logistics and ports sector in February 2018. The NIIF in association with DP World proclaimed investments of worth USD 3 billion. Hindustan Infralog, the joint venture of NIIF and DP World purchased a 90% stake in the Continental Warehousing. The UK Government in association with the NIIF started the Green Growth Equity Fund (GGEF) under its Fund of Funds to invest in transportation, water, waste management, renewable energy, and other similar sectors in the country.