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All eyes on Trump as US market heats up

Last week, Infrastructure Investor held its ninth LP Summit in New York. The mood was one of cautious optimism – with no attempt made to duck the Trump question.

Let’s start our penultimate letter of 2016 by saying something controversial: this year’s been a happy one for the US. In a country where infrastructure decisions have long been paralysed by partisan politics, major PPPs were closed – including a $4bn project to revamp LaGuardia Airport, the US’ largest ever PPP. Fair weather has also pushed renewables forward, including offshore wind, and multiple deals have proven that the energy sector still has plenty of fuel in the tank.

As nearly 200 blue-chip institutions convened in New York last week for our annual LP Summit, the infrastructure community appeared divided on the ramifications of Donald Trump’s recent electoral victory: while one fund manager reckoned the President-elect’s arrival in the Oval Office would herald a new ‘Pax Americana’, some clean energy investors did not seem quite ready to make peace with the looming prospect of a climate-sceptic presidency.

On other respects though, delegates found much to agree on. Here are a four areas of consensus.

LESSONS HAVE BEEN LEARNED

This year’s P3 successes have not been entirely coincidental. As emphasised by the Summit’s keynote address, delivered by Port Authority of New York and New Jersey executive director Patrick Foye, procuring agencies have got smarter at doing things and better at harnessing private sector innovation to drive costs down. Conversely, making full use of the federal help available to states and investors has become easier, thanks to the creation of the Build America bureau, a two-year-old outfit gathering an eclectic array of relevant loans and guarantees under one roof.

TRANSPORTATION IN THE FAST LANE

This is just as well, because congestion caused by the poor state of America’s transport infrastructure is currently costing its economy a yearly $120 billion, we heard. While energy, the historic engine of US infrastructure investment, was still expected to roar along in the years to come, the audience conveyed unprecedented hope that the port, airport and road sectors would finally take off. Stars were also seen to be aligning to facilitate projects, thanks to changes in the tax code and better publicity given to PPPs.

AMERICA GREAT AT LAST

What of M&A then? Brownfield deals were also in the limelight, and not just in the eyes of locals: delegates in attendance turned out to be eminently global, from European firms and their Australian counterparts to Middle Eastern sovereign wealth funds and Japanese trading houses. A lot of these were on the hunt for the kinds of large-cap assets that fetch dear prices in other OECD markets, and hoping to find a better deal in America. As an LP while sitting on a global panel said: “Clearly, the US is where we will be for the next eight to 12 months.”

KEEP YOUR OPTIONS OPEN

It also appeared that the US was getting ready for greater use of tailored strategies. Unlisted funds were bullish on the US, with a Europe-focused GP telling us that his flagship vehicle was likely to start investing across the Atlantic within two to three years. But listed infrastructure also defended its case, and GPs argued it might even be wise for LPs to do both. The fledgling field of secondaries got great airtime, both at the fund and asset level. And we were told, rather convincingly, that promising technologies like energy storage were on the cusp of becoming investable assets.

Of course, all of these infrastructure hopes might come to naught if a Trump presidency turns out to be a less than smooth affair. But last week, investors seemed to be giving Trump and his $1trillion infrastructure plan the benefit of the doubt.

Write to the author at matthieu.f@peimedia.com