Norfund, Norway’s $4 billion development fund, is seeking allocations to long-term infrastructure and other sectors in the Asia-Pacific region. The fund positions itself as an attractive co-investor for capital from government, institutions and the private sector.

“Public finance is a scarce resource, so the more we work with private markets, the more we can achieve. And we have significant capabilities,” said Mark Davis, executive vice president at Norfund.

“This is not concessional financing, it is not subsidized money. We do not want to crowd out private investment, we want to bring it in,” he said AsianInvestor.

Mark Davis
North America

He noted that the fund has deep private investment expertise among its staff – a skill the fund aims to leverage wherever possible.

From its Bangkok office, the fund focuses on financial services, funds and renewable energy opportunities in Vietnam, Indonesia, Bangladesh, Sri Lanka, Cambodia, Laos and Myanmar.

The company also invests in the Philippines, India and Nepal, in partnership with strategic co-investors.

Currently, 24% of Norfund’s total portfolio of $4 billion is invested in Asia. In addition, the Norwegian government provides it with annual funding, which last year supported new allocations of $601 million (of which $207 million went to Asia).

Recent allocations in the Asia Pacific region include $9.2 million in AwanTunai, a fintech company based in Jakarta, Indonesia, that helps finance supply chain investments for small and medium-sized enterprises in the fast-moving consumer goods (FCMG) sector.

LONG-TERM VIEW

The fund has no hard commitments over the life of its investments, allowing it to be a long-term investor, Davis explained.

“We can be patient, some investments we have had for 15 years. The goal is always to recycle and reinvest the capital when it leaves; everything that flows back to us stays on the balance sheet,” he said.

Typical maturities for direct energy-related investments are five to six years, while fund investments typically last 10 to 12 years for equity and shorter for debt funds, Davis added.

Direct equity allocations, which are capped at 35% of total project size, currently account for 60.7% of Norfund’s total, with 23.9% allocated to loans and 15.4% to equity through funds.

The full portfolio is divided into four themes: renewable energy, financial inclusion, scalable enterprises and green infrastructure.

“Most of our fund investments are not energy or climate related. Traditionally, we have focused on funds to provide capital to smaller companies that are harder for us to reach, including in countries where the fund managers have (expertise),” Davis said.

Norfund, which employs 130 people, plans to allocate $400 million per year globally, with funding secured by the Norwegian government. Individual equity allocations by the fund typically range from $4 million to $50 million.

CLIMATE FUND FOCUSED ON ASIA

In addition to the $4 billion development fund, Norfund in 2022 took charge of the country’s new Climate Investment Fund, a second development fund focused on avoiding emissions in developing countries.

Seven of the eight countries targeted by this investment fund, namely South Africa, India, Sri Lanka, Vietnam, the Philippines, Cambodia, Indonesia and Bangladesh, are located in Asia.

For the Climate Investment Fund, the typical equity stake is 20% to 35% of a project and typical allocations are between $50 million and $150 million.

According to Tellef Thorleifsson, CEO of Norfund, the addition of the Climate Fund mandate has given impetus to an area where Norfund already had a strong focus.

“The need for renewable energy capital in these markets has increased further due to more expensive capital and high gas prices, and we see significant opportunities to make a significant difference,” he said.

SAFE FINANCING

Thanks to the annual financial injection from the Norwegian government, Norfund’s investments have been able to continue even when international investors have withdrawn.

In 2022, when the MSCI World index fell 18%, Norfund allocations reached an all-time high of $601 million. a level that was maintained last year.

“Investment increased 20% in 2020, 10% in 2021 and another 20% in 2022,” Davis said.

Norfund estimates that in the energy sector, every dollar allocated by Norfund is matched by $9 from other investors, as projects in the sector typically use a leverage of around 80% bank debt and 20% equity.

Davis explained that the fund is “one of the largest small” development funds, a group that also includes funds from Germany, the Netherlands, France and the $7.2 billion British International Investment fund, which Norfund most closely resembles in size and style.