Investment in Infrastructure Grows Along with Demand for Talent
Cash-strapped federal and state governments are increasingly looking to private capital to supplement public funding for desperately needed infrastructure projects. The Organization for Economic Co-Operation and Development (OECD) says the world economy is expected to grow on average at close to 3% per year to 2030. The group warns that the fast pace of global growth will put increasing pressure on infrastructure. The recent surge in infrastructure investing has led to a number of new players looking to make multibillion-dollar investments in U.S. infrastructure assets, including a slew of private equity funds…as well as pension funds.
As the lure of public-private partnerships or P3s continues, executive search firm, A.E. Feldman, contends that demand for qualified experts with proven track records and expertise in infrastructure assets’ operations are in growing demand. The firm reports that financial jobs exist for candidates with backgrounds in investment banking as well as experience in analyzing and executing structured financings. Specifically, professionals with expertise in project finance in infrastructure in the transportation sector are in demand. The most sought after candidates are those with experience in infrastructure transactions and civic engineering.
Rough estimates from the OECD suggest that annual investment requirements for telecommunications, road, rail, electricity and water taken together are likely to total around an average of 2.5% of world GDP. If electricity generation and other energy-related infrastructure investments in oil, gas and coal are included the annual share of GDP rises to around 3.5% - a figure that jumps even higher if other infrastructure such as ports, airports and storage facilities are included.
That said, the OECD contends that governments are simply not poised to meet these growing, increasingly complex infrastructure needs. In a recent report entitled Infrastructure to 2030, the group states, “Looking across the full range of economic, social and environmental forces affecting key infrastructure sectors, nowhere does the current public policy, regulatory and planning framework appear adequate to tackle the multiple challenges facing infrastructure development over the next 25 years. Failure to make significant progress towards bridging this infrastructure gap could prove costly in terms of congestion, unreliable supply lines, blunted competitiveness, and growing environmental problems, with clear implications for living standards and quality of life.”
In other words, the old ways of financing and constructing public facilities through bonds and taxes will not suffice to bridge the growing infrastructure gap The OECD notes, however, that investors and politicians alike see privatization as a viable alternative. The group states that since the 1980s more than $ 1 trillion of infrastructure assets have been privatized in OECD countries.
Politicians are increasingly embracing private-sector financing and tolling for infrastructure projects out of sheer fiscal necessity as well as increased efficiency and skill. According to the OECD report, “New business models with private sector participation, notably variants of public/private partnership models (PPPs) that are being increasingly used particularly in OECD countries, offer further scope for unlocking private sector capital and expertise.”
Growing interest by the private financial sector in transportation projects has recently spread to Central Texas and may be part of the long-term answer to funding toll roads there, according to a recent report in the Austin Business Journal. The report states that J.P. Morgan Securities, a division of J.P. Morgan Chase & Co., has pledged to provide the Central Texas Regional Mobility Authority (CTRMA) up to $2.5 billion in capital sources for planned toll road or managed lane projects at U.S. Highway 183, State Highway 71, U.S. Highway 290, and MoPac Expressway. Don Henderson, Executive Director at J.P. Morgan Securities, is quoted as saying, “JP Morgan’s $1 billion Asset Management Fund is looking into directly investing in CTRMA’s projects.”
The huge pools of private sector capital managed by insurance companies and pension funds are also drawn to the -risk and steady-return profile of infrastructure assets.
The $169.2 billion California State Teachers’ Retirement System (CalSTRS) has taken a step towards implementing a new infrastructure portfolio that could top $1 billion, according to Pensions & Investments. The report states the move is an attempt to help the pension fund reap excess returns while hedging against inflation.
CalSTERS recently approved the first draft of a policy for a fixed asset financing portfolio, or infrastructure portfolio that will begin at $1 billion, but will grow if the initial investments prove successful, according to P&I. The report says the pension fund has been reviewing the asset class, which includes roads, power lines, bridges and ports, for more than a year. P&I also states that CalSTERS sees the asset class as a hedge for long-term liabilities, a hedge against inflation and an avenue of diversification for the overall investment portfolio.
