Non-bank capital market investors are typically insurers, specialist fund managers, pension funds and sovereign wealth funds. Traditionally, some of these investors have tended to invest in project equity as opposed to debt, but they are now looking increasingly at the debt side. Their investment strategies vary and various factors influence their approach, such as market trends, investment beliefs, regulation, risk appetite, liability considerations, cultural factors, governance structures, tax issues, jurisdiction and, ultimately, domestically available assets. Some may require investments to have an investment grade credit rating or security, or to be listed. Others can hold non-investment grade or unrated instruments. The return they expect on bond investments will depend on the risks involved and how easily they can liquidate their investment. As with commercial banks, they will have competing demands on their funds and only invest if risks are mitigated to their satisfaction.
The two main challenges for institutional investors looking to invest in PPP Projects are understanding the risk profile of the asset and the need for extensive interaction with creditors. These are discussed further in Sections 9.3.8 and 9.5.1.