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Learning The Art of Long-Term Investing From… OPIC

I spend a lot of time looking at mechanisms and models to facilitate long-term investments. A new report from Brookings suggests that America's Overseas Private Investment Corporation offers a useful model. Let's investigate...

I spend a lot of time thinking about long-term investing, and, more to the point, I like thinking about ways to help long-term investors participate in the development of disruptive technologies. It’s in this respect that I tend to gravitate towards the “clean energy” sector. I obviously like the idea of helping to minimize our reliance on hydrocarbons, but I’m actually more fascinated by the structures and mechanisms that are being used to attract private capital into these long-horizon, capital-intensive opportunities. After all, many “clean energy” companies are, in reality, attempting to build new industries, complete with an industrial supply chain. And that’s a long-term challenge, which is why it’s so hard to attract private financing (which is increasingly short-term oriented).

But herein lies a real opportunity: If we can attract private money into these clean energy investments, there’ll be some important lessons for the broader “long-term investment project”. So it was with great interest that I recently read this Brookings report on ‘clean energy finance banks’. The report takes as a given that government support for the development of clean energy is going to be scaled back due to budget constraints. As such, it begins to sketch out some new mechanisms that can attract private financing into the space. Interestingly, the main source of inspiration for the authors was... America’s OPIC.  That’s right, the Overseas Private Investment Corporation is a model vehicle for facilitating long-term investments in clean energy:

“Structured like a private corporation, OPIC budget is fully self-sustaining from its own revenues (e.g. charging interest and premium from its products) and the agency operates at no net cost to U.S. taxpayers. In fact it has recorded a positive net income for every year of operation. The discipline of being self-sustaining has served OPIC well, both because it requires the agency to be very well run and also because it insulates it from the appropriations and political process. More importantly, the emphasis on being self-sustaining has influenced the types of projects that OPIC finances—commercially viable projects that have a high likelihood of pay-back but are not able to access market financing for one reason or another.”

I’m fascinated by the notion that OPIC – which has helped American companies de-risk aspects of their emerging markets investments since 1971 – may be a useful model. Here's a blurb: 

"...numerous states are exploring a variety of ways to leverage scarce public resources with sophisticated banking and finance mechanisms even as one state continues to implement an especially bold and intriguing new model. That model—which draws inspiration from the Overseas Private Investment Corporation (OPIC) and several international experiments (see sidebar on OPIC and the Appendix)—entails the creation by states of clean energy finance banks that can combine scarce public resources with private-sector funds and then leverage the funds to invest in the build-out of clean energy projects and metropolitan energy industries."

I think there’s a big research project in here somewhere...

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