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

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  • MORAG I. TORRANCE

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.

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  • Morag I. Torrance, 2007. "The Power of Governance in Financial Relationships: Governing Tensions in Exotic Infrastructure Territory," Growth and Change, Wiley Blackwell, vol. 38(4), pages 671-695, December.
  • Handle: RePEc:bla:growch:v:38:y:2007:i:4:p:671-695
    DOI: 10.1111/j.1468-2257.2007.00392.x
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    Cited by:

    1. Ashby H B Monk, 2009. "The Geography of Pension Liabilities and Fund Governance in the United States," Environment and Planning A, , vol. 41(4), pages 859-878, April.
    2. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, vol. 40(12), pages 2552-2563.
    3. Eric R.W. Knight & James D. Meade, 2015. "Managing Productivity in the Infrastructure Sector: A Case Study from Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 214-222, December.
    4. Kevin Dwarka & Eran Feitelson, 2013. "The political economy of urban infrastructure," Chapters, in: Hugo Priemus & Bert van Wee (ed.), International Handbook on Mega-Projects, chapter 8, pages 158-181, Edward Elgar Publishing.
    5. Rajiv Sharma & Eric Knight, 2016. "The Role of Information Density in Infrastructure Investment," Growth and Change, Wiley Blackwell, vol. 47(4), pages 520-534, December.

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