“We’ve greatly improved the overall understanding of the global community of what the infrastructure industry is, but we really are at the beginning of the journey,” Thierry Déau, chairman of the Paris-based Long-Term Infrastructure Investors Association (LTIIA) told fellow members who last week travelled to Washington DC for the organisation’s second annual meeting. “I know I’ve been saying that for 20 years, but it’s a very long journey.”
Déau, also the founder and chief executive of infrastructure fund manager Meridiam, the association’s founding member, provided an overview of the organisation’s progress since its launch in the summer of 2014 and outlined the work that remains to be done.
“Over the past year, we needed to provide governments, as well as investors and regulators, with hard evidence,” he said. “The evidence was that infrastructure was a real asset class on its own. The second was that infrastructure is really the missing link for creating sustainable growth and sustainable strategies for economic growth,” he remarked, citing Africa, which has been losing about one percent of GDP per year because of the lack of infrastructure, as an example.
In addition to providing hard evidence, he explained, LTIIA is also focused on dispelling two myths: that infrastructure risk cannot really be understood nor assessed; and that the world of finance, particularly after the Global Financial Crisis, is by design short-term, lacking a focus on the long-term and the public good.
One way the association is looking to dispel the first myth is by creating a benchmark in collaboration with the Paris-based EDHEC Risk Institute, Déau noted.
“With the creation of a benchmark for infrastructure investment, we believe we will be able to prevent infrastructure assets from being placed in the same bucket as hedge funds or type 1 equity.”
Another key initiative and a tool for dispelling the second myth is under way with the compilation of an ESG handbook. “Environmental, social and governance issues are at the heart of infrastructure risk management and this is the way we look at it,” he explained. “This is something that can actually improve investment profiles and actually improve the communities in which infrastructure is invested in.”
While the association’s reach is global, the event also featured panel discussions focusing on the US, particularly since the annual meeting was being held in Washington DC.
The US landscape
“The bond of trust [between the public and private sector] has long been one of respectful but mutual suspicion,” Meridiam’s North America chair Jane Garvey commented during a panel discussion focused on public-private partnerships (PPPs; P3s) in the US. This is despite the fact that much of the country’s infrastructure built in the late 19th and early 20th centuries was the result of private sector initiatives.
That all changed in the 1950s, however, when the federal government made a serious commitment to building the interstate highway system, resulting in a shift in mentality that these are public assets and therefore the government’s responsibility.
Secretary of Transportation Anthony Foxx, one of the keynote speakers at the event, spoke of ‘cognitive dissonance.’ “We know instinctively that we need to have more and better infrastructure on the one hand and then on the other hand there’s an expectation that the public sector will absorb the cost of doing that,” he remarked.
The US Department of Transportation (USDOT) has been making serious efforts to address the country's aging infrastructure, including focusing on project acceleration, reducing the cost of getting projects done and laying stronger foundations for PPPs, which while not a silver bullet were described by Foxx as “a part of an ecosystem that can support the growth of American infrastructure in real ways.”
The transportation secretary presented examples of the department’s work to date, such as creating the Build America Transportation Investment Centre (BATIC), aimed at making existing credit programmes within USDOT – including TIFIA and private activity bonds (PABs) – more accessible not only to public sponsors but also to private investors. Within its first year of operation, BATIC has supported about $18 billion worth of infrastructure investments.
Foxx said USDOT continues to focus not only on making existing tools available but creating new ones as well.
“One of my fantasies as Secretary is that we will have a clearinghouse […] that would have projects that are looking for private sector funding posted and a place where investors can easily find those projects,” Foxx said, adding that his department is exploring whether such a clearinghouse can be set up internally within DOT or externally. “That would provide a very useful service to potential deals.”
The bigger picture
Other speakers offered a more global perspective. One institutional investor executive said that the world not only lost 10 percent of global GDP as a result of the 2008 financial crisis, but that loss is actually permanent.
“Before this crisis, after 1930, global GDP would drop during the crisis, then go up, have a very strong rebound and then gradually land on the trend line. All the crises were absorbed before; this is the first time that the global GDP level did not go back to trend and is still under.”
Furthermore, government debt as a percentage of GDP is higher than it was after World War I and the Great Depression and only slightly lower than World War II.
While these figures may have had a sobering effect on attendees, they also helped underscore the need for infrastructure investment as a means for driving economic growth.
The two-day event, which also included panel discussions on the social benefits of infrastructure investment as well as infrastructure investment as a way of fostering inclusive and green development, provided participants with plenty of matter for debate.
“This is a time when we can be happy about what we’ve achieved in the past year but we can also be very encouraged that we have many more challenges in front of us,” Déau said. “I hope that – I wouldn’t say next year because that would be really optimistic – but in five years when we meet again at one of these events that we will feel we’ve made a huge difference.”
To date, the association has 40 members, including: Allianz Global Investors, Amundi Private Equity Funds, Development Bank of Japan (DBJ), Campbell Lutyens, European Bank for Reconstruction and Development (EBRD), InfraRed Capital Partners, InfraVia Capital Partners, MACIF, Marguerite Adviser, OFI Asset Management and Skandia Mutual Life Insurance Company.
In addition to LTIIA members, key public officials from organisations such as UN-PRI, the World Economic Forum, the World Bank, the US Department of Treasury and the International Monetary Fund (IMF) attended the event.