Last week, we ran an editorial from sister publication Private Equity International that asked whether employee ownership was the future of private equity. In it, there was a perceptive comment from Steffen Meister, executive chairman of private markets firm Partners Group, which read: “Unless there is more evidence available within the wider society that employees feel good about private-markets ownership, we will always have challenges.”
On Monday, we published a guest comment from Sadek Wahba where the I Squared Capital founder made an analogous suggestion to Meister’s ‘spread-the-benefits’ argument: “Allow for a new type of individual retirement account that invests solely in [US] infrastructure development.” This new IRA would allow American savers to help develop the country’s infrastructure, by locking away their money for at least 10 years in a tax-advantageous structure. If a third of current IRA account holders would open this new account, an annual $50 billion could be raised, Wahba points out.
The idea of allowing savers – not just in the US, but across the world – to invest in infrastructure through long-term, tax-advantageous structures makes a lot of sense. It makes public-policy sense, by giving citizens a chance to participate in a key plank of their countries’ plans (think war bonds minus the devastating conflict). It makes asset-class sense, keeping the need for infrastructure investment front and centre. And it makes private-markets sense, creating another pool of capital able to invest alongside institutional money in bankable projects, directly exposing savers to some of the basic tenets of private infrastructure investment – namely, long-term, low-risk assets generating a steady return.
Of course, any such structures would have to be handled with care. The last thing anyone wants is for this new pool of capital to turn into $50 billion of ‘suckers’ money’ – vulnerable to predatory practices, channelled to weaker projects or offered less favourable terms. There is no need for another ‘Wall Street preying on Main Street’ headline. Equally undesirable would be for these funds to fall prey to unscrupulous politicians and used to finance pet projects of dubious bankability.
Perhaps recognising the above, Wahba suggests a not-for-profit ‘InfraTrust’ be created to, among other things, manage this pool of money, “riding hard on private contractors”. Whatever form it would take, oversight and protection should be a key requirement. And so, we would add, should a commitment to sustainable infrastructure investment. To be clear, we are not suggesting a pool of money like this should exclusively target energy-transition investments. But we are saying it should not be invested in corners of the infrastructure market where stranded-asset risk is creeping up – nor in projects that are inadequately future-proofed or fail to meet ESG requirements, which could also result in stranded assets.
The above, though, are not dealbreakers – they’re not even obstacles, really. They are just contingencies that need to be planned for. Because there’s a lot to like about the idea of making infrastructure investment widely accessible to the average saver.
Members of Infrastructure Investor’s Global Passport will be meeting next Wednesday to answer: Has the market accurately assessed infrastructure valuations throughout the pandemic? On hand will be MetLife’s Director of European Infrastructure Annette Bannister, Local Pensions Partnership Head of Asset Management Colin Simpson, Arjun Infrastructure Partners Partner and Head of Research Serkan Bahçeci, and EDHECinfra Director Frederic Blanc-Brude. To join, visit https://bit.ly/3cGuVNn