The Power of Governance in Financial Relationships: Governing Tensions in Exotic Infrastructure Territory

Abstract

ABSTRACT The scope of financial products has recently extended to include investments in infrastructure assets that were previously community owned. While private investment in infrastructure is not new, the rise of institutional investors searching for infrastructure investments to match long‐term liabilities is a recent phenomenon. Most cannot hire the necessary expertise or take on the relatively large risks that accompany undertaking such endeavors in‐house, with many opting to place capital in specialised infrastructure funds. While there is a plethora of studies on various aspects of public and corporate governance, this paper concentrates on the governance of relationships between institutional investors and their infrastructure fund managers, contributing to the growing body of literature on financial geographies through a focus on the decision‐making of financial actors at the micro level, where the origins and destination of capital into geographies are determined. This private governance is defined as the “regulation” by private agents, insofar as they must anticipate and deal with potential or inherent conflicts of interest. Even as the “embedded” argument stresses the role of concrete personal relations and networks in generating trust, when interests need to be safeguarded in new and unfamiliar settings such as in infrastructure equity investing, the scope of private governance plays a central role in creating the financial relationship. This is supported through a discussion of four problems in private infrastructure governance, which are affected by but also have an impact upon the development of trust and long‐term relationships. Despite differing constraints and various degrees of negotiating leverage, innovative economic action is structured through anticipating and aligning diverging interests of (new) social relations.