For decades, the Washington-based World Bank went to the biggest financial players in the world when it wanted cash, but now it's eyeing well-heeled retail investors in Hong Kong and mainland China as it seeks to broaden its funding base.
'The World Bank has issued many bonds over the past 50 years but they were mainly bought by institutional investors. Retail investors are not that interested in bond products,' Michael Bennett, head of derivatives and structured finance at the World Bank, told the South China Morning Post in an exclusive interview. 'We would like to diversify our investor base to attract more retail investors. This is why we have to issue retail fund products.'
The World Bank already has the mandate to issue bonds in domestic currencies to set the benchmark to promote capital markets in developing countries. The funds it raises from these bond offerings are lent to those countries for infrastructure or other projects to alleviate poverty and improve living standards.
Retail funds for investors were the logical next step and Bennett was in Hong Kong last week to co-host the launch of the World Bank's second retail fund - its first was launched in Japan in 2005.
Bennett said the Japanese bond fund, issued in yen, was tailored to Japanese investors. Its second retail fund, in partnership with Bank of China (Hong Kong) Asset Management, is an emerging-market bond fund targeting retail investors in Hong Kong and on the mainland.
The BOCHK World Bank Emerging Markets Bond Fund has a China theme, and is on offer until July. It is an open-ended fund, investing 85 per cent of its assets in World Bank-issued debt securities denominated in 40 currencies of countries trading with China, including Australia, Brazil, Chile, Colombia, India and South Africa. Investing in the fund would be equivalent to investing in a basket of debt securities denominated in various currencies.
'Hong Kong is an ideal location for retail fund offerings as it can attract investors in the city as well as those from mainland China,' Bennett said, adding that the World Bank would consider launching more fund products with BOCHK.
Bennett said the World Bank did not intend to get into asset management, so it teamed up with BOCHK, whose asset management arm could handle the investment while the bank's network could sell the funds.
The retail fund launches in Japan and then China reflected the evolution of these economies, he said.
Japan in the 1950s and 1960s needed to borrow from the World Bank when it was still a developing economy.
But when it became a major world economy in the 1980s, it became a source of finance that the World Bank could use to issue bonds and retail funds.
The World Bank's retail bond fund in Japan now stands at about US$3 billion.
'China is on the same trajectory. Twenty or 30 years ago, it had to borrow from the World Bank to develop its infrastructure and for other projects,' Bennett said.
'Now it is the world's second-largest economy and is gradually becoming a source of funding.'
China has become the third-largest shareholder of the World Bank, but still borrows from the institution, with total outstanding loans of about US$13 billion.
Its legions of newly wealthy citizens are also potential investors in the bank's bond or fund offerings.
Bennett said the World Bank's issue of so-called dim sum bonds - yuan-denominated bonds issued in Hong Kong - had gone down well and the bank would issue more.
Bennett also said he did not think the euro-zone crisis discouraged investors from buying its fund products or bonds.
'Investors are eyeing high-quality bonds amid the euro-zone crisis. The World Bank has a high credit rating, which is why our offers are attractive,' he said.
The World Bank has top triple-A credit ratings from rating agencies Standard and Poor's and Moody's Investors Service.