As was pointed out to the 170 people gathered at an Infrastructure Investor panel discussion, the cover of last Sunday’s New York Times Magazine declares: “Infrastructure! It’s More Interesting Than You Think, Actually”. Judging by the laughter that filled the conference facility at law firm Kirkland & Ellis’ New York office, the Times may be on to something.
Infrastructure industry movers and shakers gathered to help PEI Media, the parent company of InfrastructureInvestor.com celebrate the official launch of a new magazine, Infrastructure Investor – now in its fourth monthly issue.
Blackstone Infrastructure Partners co-head Trent Vichie, Carl McCall of the New York State Asset Maximisation Commission (and the former controller of New York state), Ben Heap, head of infrastructure asset management at UBS, Sean Maloney of Kirkland & Ellis and Mark Murtagh of 3i were among the attendees who came to mingle informally over breakfast and share their views on a panel about the future of the asset class.
One attendee, former Florida governor Jeb Bush, stood up to share with the crowd his observations on the reasons for failure and success in public-private partnerships (PPPs).
As the event kicked off, David Snow, executive editor of PEI, held up the New York Times Magazine cover to highlight the growing awareness of the need for infrastructure investment among the general public.
The awareness of the infrastructure opportunity among voters, politicians and institutional investors are among many reasons why PEI Media has launched the Infrastructure Investor magazine amid what is otherwise a very difficult time for media of all forms. The increased interest (and, possibly, sponsored bagels) is also why infrastructure on a Wednesday morning can attract such a large crowd.
The need for investment was not news to this crowd, though. Instead, they were most interested to hear how the private and public sectors can work together to overcome political obstacles to infrastructure investment.
One takeaway from the event was that, despite the turbulent financial markets, political opposition is still the single biggest factor holding back the proverbial PPP “floodgates” in the US. And the political problems mainly have to do with key constituencies – labour, state and local authorities, regulators – not talking to each other prior to public-private partnerships (PPPs) being pursued.
In New York, opposition from labour has been particularly fierce, McCall said, and one of the goals of his New York Asset Maximisation Board is to bring labour on-board with the other stakeholders to move projects forward in a consistent process.
In order for PPPs to become more politically palpable, investors need to first pursue the “easy” projects, and these are primarily greenfield projects – building new schools, developing unused state university land.
Both Governor Bush, who delivered impromptu comments, and Chairman McCall agreed on this.
Long-term leases of existing infrastructure assets are fraught with a genuine worry on the part of the public that the lease proceeds won’t be spent properly, said Bush. “There’s this great mistrust that the drunken sailors are in charge of the budgeting process,” he said. To get around it, Bush suggested that investors focus more on developing capacity via greenfield developments, which are more politically viable and easier to sell to the public.
McCall echoed these views, arguing that, for example, it would be foolhardy of his Asset Maximisation Board to start out by trying to do a multi-billion dollar replacement of New York’s Tappan Zee Bridge, because that idea, while high profile and potentially lucrative, is also the most fraught with political issues.
Governor Bush also made the case for stronger political leadership for PPPs. “You need someone who leads this process and swats the flies off, the challengers,” he said, noting that many PPPs only bear fruit well after the elected officials supporting them have moved on to other jobs.
The private sector can also lend a helping hand by stoking grass-roots public support for PPPs. Blackstone’s Vichie floated one idea for doing this. He pointed out that in Australia, his native country, average people made a lot of money from public floats of infrastructure assets bought by the private sector. That helped the public warm up to the idea of private infrastructure investment and could also help build similar grass-roots support in the US, he said.
Despite the market turbulence and political pushback, the panelists found much to be hopeful about. Politicians have no other alternative but to embrace PPPs since the only other two choices are cutting services and raising taxes, they said. The industry participants gathered today were still optimistic that politicians will eventually face this reality and make the right choice – the only question is when.
For photos of the event, please see the presentation below.