Presentation on theme: "Investing in Supranationals"— Presentation transcript:
1Investing in Supranationals THE WORLD BANKInvesting in SupranationalsGeorge RichardsonHead of Capital Markets1225 Connecticut Ave NW Washington, DC USA
2Road Map for Today’s Presentation Why care about Supranational issuance?What / Who are “supranationals”?How do they compare to GSE’sWhat are their characteristicsIssuance profilesChallenges to buying Supranational bond issuesExample: The World Bank
3Why care about Supranationals? Diversification of AAA portfoliosInvestment of safe haven assetsReplacement for shrinking supply by GSEsEarn “social” returns in addition to financial returns
4What are Supranationals? A supranational are international institutions that provide development financing, advisory services and/or other financial services to their member countries to achieve overall goal of improving living standards through sustainable economic growth.Key featuresTriple-A rated (with only two exceptions in the past)0% risk weighting with Basle II and IIIFinancial strength based ondiversified, sovereign shareholdersconservative risk managementquality loan portfolio (preferred creditor status)substantial liquidity and consistent profitabilitystrong capitalizationIssuers of US$ global benchmarksIssuers of only senior, unsecured debt (with only three, known exceptions)Some issue other instruments of possible interest to US government and official sector investorsBenchmark bonds included in major USD and global indices
6The Sov/Supra/Agency (SSA) sector The different categories of issuersAAA SupranationalsAfDBAsDBCoEDBEBRDEIBIADBIFCIBRD (World Bank)NIBFull Government GuaranteeKfW (Germany)OKB (Austria)ICO (Spain)EDC (Canada)EFSF (some European sovereigns)Implied Guarantee or Government OwnershipBNGCADESEksportfinansEurofimaSEK
7GSE’s – Supra’s: Some basic differences US GSESupranationalMissionUS Residential PropertyInternational, multi-sectoral economic development and poverty reductionLeverageN/A – Negative equity gap is bridged each quarter (when applicable) with investment from Treasury under the preferred stock purchase programCapped by capital (in most cases to 1x leverage or less)SponsorshipUS GovernmentMulti-governmentCall on CapitalUS TreasuryMember nationsOversightFederal Housing Finance Agency – regulator (and conservator)Resident board with representatives from all members who approve all loans and control other activities
9Myths about Supranationals The MythsMyths DebunkedThe World Bank is a corporate issuerWorld Bank (IBRD) is a supranational but supranationals can be found in both corporate/aggregate and government-related indicesKfW is the same type of MDB with the same development mandate as World Bank or other supranationalKfW is the German government guaranteed agency responsible for promoting German business interest domestically and around the world. Their credit depends on the guarantee from the Federal Republic of Germany.If member countries do not repay their loans, investors in supranationals do not get their money back.Investors in supranational bonds are not exposed to project / lending risk. Supranationals maintain conservative reserves and have subscribed capital from their member countries to always ensure the ability to pay its bond investors.
10Challenges to investing in supras State or local laws governing eligibility for investmentsFinding bonds in secondary marketConnecting syndicate desks at banks with sales forces that cover the US official sector investor baseAre we issuers of products you want to buy?Types of projects being financed include environment and climate change, health and education, social protection, and business development within a targeted region.
11World Bank OverviewInternational organization owned by 187 member countriesA global development cooperative – its owners are its clientsThe world’s largest source of development finance and expertise60 years of financing development projects:US$500 billion in financingApproximately 130 countries5,000+ projects10,000 staff from 160 countries in 130 countriesThe World Bank (International Bank for Reconstruction and Development, IBRD) is the largest part of the World Bank GroupFinances activities by issuing bonds in the capital markets
12The World Bank GroupInternational Bank for Reconstruction and Development (IBRD) Issuer of “World Bank” BondsInternational Development Association (IDA)International Finance Corporation (IFC)Multilaterial Investment Guarantee Agency (MIGA)International Centre for the Settlement of Investment Disputes (ICSID)
13United States and World Bank The World Bank was originally set up to help countries rebuild after World War IIThe U.S. was a leading force in its establishment and is the largest shareholder (16.8%)The current president of the World Bank, Robert Zoellick, was previously a U.S. Deputy Secretary of State and U.S. Trade RepresentativeThe Mount Washington Hotel in Bretton Woods, New Hampshire hosted representatives from 44 nations for the UN Monetary and Financial Conference from July 1-22, 1944.John Maynard Keynes chairing the conference in July 1944.
14Millennium Development Goals The World Bank and its member countries are working towards these 8 specific, measurable targets, which aim to reduce poverty by half by 201512345678Eradicate extreme poverty and hungerAchieve universal primary educationPromote gender equality and empower womenReduce child mortalityImprove maternal healthCombat HIV/AIDS, malaria, and other diseasesEnsure environmental sustainabilityDevelop global partnerships
15The World Bank Increases Funding When & Where it is Needed Funding volume grows in response to global financial crises and the resulting increase in lending activity, and/or refinancingAnnual Funding Volumes (fiscal years billions US$)
16How to find World Bank Bonds on Bloomberg Pricing Sources: Bloomberg: IBRD <Govt> <Go>
17How to find World Bank Bonds on Bloomberg Pricing Sources: Bloomberg: Discount Notes: WBDN <Go>
18World Bank Green BondsWorld Bank Green Bonds support mitigation and adaptation projects selected by World Bank climate change and sector specialistsInvestment product developed for investors concerned about the impacts of climate changeInvestors benefit from Aaa/AAA rating of the World Bank (IBRD), World Bank’s “due diligence” for projects and are provided annual reporting through newsletterGreen Bonds have “demonstration benefits” for other issuersNext bond that came out was the Green bond.This is a little different from the Eco bond and the Cool bond. In this case the bond’s proceeds, meaning the money we get from the investors, is not going to the general pool, but rather is earmarked specifically for environmental projects.How does the World Bank GREEN BOND work?Funds from the Green Bond will support climate change projects that are selected by World Bank environmental and climate change specialists.Overview of the Green Bond process:Investors buy World Bank Green BondsFunds are assigned to a special “green” account to support climate change projectsEnvironmental and climate change specialists select, review, and approve green project portfolio (this is based on an agreed list of mitigation and adaptation criteria – see appendix)18
19World Bank Green Bonds and Funds Since the inaugural issue in 2008, approximately USD 2.2 billion has been raised with 35 World Bank green bonds issued in 15 different currencies. Nikko Asset Management set up diversified currency World Bank Green Bond funds that won an ESG (“Environment, Social, Governance”) award in Europe. A US fund manager is now currently working on creating its own green fund along with an index.List of InvestorsUSDCalifornia State Treasurer’s OfficeCalSTRSMMA Praxis Mutual FundsNew York Common Retirement FundSarasinSEB Ethos rantefundSEB Trygg LivSecond Swedish National Pension Fund (AP2)Third Swedish National Pension Fund (AP3)Trillium Asset ManagementUN Joint Staff Pension FundOther currenciesAdlerbert Research FoundationAP2 – Second Swedish National Pension FundAP3 – Third Swedish National Pension FundLF LivMISTRANikko Asset ManagementSkandia LivHow does the World Bank GREEN BOND work?Funds from the Green Bond will support climate change projects that are selected by World Bank environmental and climate change specialists.Overview of the Green Bond process:Investors buy World Bank Green BondsFunds are assigned to a special “green” account to support climate change projectsEnvironmental and climate change specialists select, review, and approve green project portfolio (this is based on an agreed list of mitigation and adaptation criteria – see appendix)
20More Information… Internet: treasury.worldbank.org Phone:Fax:George RichardsonUrvi MehtaAddress: H Street, Washington, DC 20433, U.S.A.Pricing Sources:Bloomberg:IBRD <Govt> <Go> or IBRD <Go>; for Discount Notes: WBDN <Go>