The manager for Norway’s sovereign wealth fund has bemoaned the smaller scale of infrastructure projects in developing nations after a report to the government called for it be allowed to invest in the asset class.

Noting that infrastructure assets in emerging markets and developing economies present additional challenges not found in OECD countries, a discussion note released by Norges Bank Investment Management (NBIM) nevertheless emphasises that the less mature markets represent “interesting investment opportunities for investors willing and able to take on these additional risks”.

The publication of the note, released alongside a complementary paper discussing the opportunities in renewable energy, comes after the Norwegian government was urged to allow the Government Pension Fund Global (GPFG) to invest in unlisted clean energy and emerging market infrastructure.

In a report co-written by Leo de Bever, former chief executive of the Alberta Investment Management Corporation and commissioned by the Ministry of Finance last year, the government was also urged to broaden the GPFG’s property mandate to allow it to benefit from urbanisation in emerging markets.

The detailed report made a number of suggestions, although the three co-authors – de Bever, Stijn Van Nieuwerburgh of New York University and Richard Stanton of University of California, Berkeley – could not agree whether the sovereign fund should opt for listed or unlisted infrastructure investments, with a 2-1 split in favour of a “substantial” direct infrastructure portfolio.

Van Nieuwerburgh and Stanton were concerned with “myriad non-financial risks” stemming from unlisted holdings, including political and reputational risks, whereas de Bever argued that the sovereign fund’s peers were operating largely in the unlisted space.

Outlining their reasons for investing in emerging market infrastructure, the co-authors cite a strong historical performance but also the “enormous” funding need in such countries, especially after traditional funding sources were in decline.

“The main challenge lies in managing several incremental sources of risk such as political risk, regulatory risk and management and governance risk,” the report says.

It also recommends a greater focus on emerging market property once NBIM has built up sufficient internal expertise.

“Due to urbanisaton, a growing middle class and a rebalancing towards a larger service sector,” it says, “much of the world’s future demand for real estate will be in developing countries.”

The recommendation that NBIM be allowed to grow clean energy holdings into the unlisted space comes after the fund’s environmental mandate – partially comprising stakes in listed clean energy – was doubled.

The “opening up” to unlisted clean energy would allow NBIM to “explore” the sector, the report’s authors said, adding that clean energy would constitute “a majority” of energy investments over the coming 30 years.