Finance executives are lamenting being frozen out of plans to bolster America’s dilapidated infrastructure, as the Biden administration pushes a tax-and-spend approach to building projects.
President Joe Biden’s “American jobs plan”, unveiled last month, calls for $2tn of investment in highways, electrical grids and other basic infrastructure.
At the same time, the White House put forward corporate tax reforms that it said would generate enough money to pay for the investment spree within 15 years.
That has disappointed some investors and asset managers who once expected public-private partnerships would be a lucrative financing opportunity.
“I would love to put money into infrastructure projects,” said Christopher Ailman, chief investment officer of Calstrs, the retirement system that pays the pensions of California teachers.
There are huge pools of private capital standing by
The $290bn fund has held sporadic talks with the US Treasury about investing in infrastructure projects since the Obama administration, Ailman said. “A lot of long-term investors . . . look at infrastructure as being a source of stable long-term returns,” he said.
Private capital vehicles dedicated to infrastructure had amassed $655bn in assets by last June, according to data from Preqin — enough to pay for trillions of dollars of investment, once debt financing is added on top.
“There are huge pools of private capital standing by,” said Larry Fink, chief executive of BlackRock. “And a big problem is a lack of infrastructure projects for investors to invest in. ”
Donald Trump once hoped to solve that problem, promising in his inauguration speech to “build new roads and highways and bridges and airports and tunnels, and railways, all across our wonderful nation”.
Those ambitions prompted the government of Saudi Arabia to commit as much as $20bn to an investment fund focused on US infrastructure.
But Trump’s construction programme never materialised, and Blackstone, the asset management group that invests the Saudi money alongside capital from other investors, has largely focused on trying to buy existing assets such as ports, railways and toll roads, rather than pouring concrete on Greenfield sites.
While Biden’s infrastructure proposal revives some of the unfulfilled ambitions of his predecessor, it does not envisage a role for the private investors who had once expected to be in the driving seat.
“This is a very traditional ‘the government is spending on infrastructure’ plan,” said a lobbyist who regularly represents private equity firms in Congress.
“It shows that President Biden really is a politician who was reared in the ’70s and ’80s. It sure seems like the old, fund-it-through-the-government approach. This is how you did infrastructure then. ”
Unlike the federal government, which pays a lower interest rate on its debt than almost any other borrower, private sector infrastructure operators must earn commercial rates of return, a cost that ultimately lands on the users of essential services.
“If the Biden administration wants the cheapest financing costs they will fund projects federally,” Fink said.
But some executives argue private-sector involvement can impose commercial discipline and generate savings elsewhere.
Others hope that Biden can be persuaded to sell off assets that are currently in public ownership, allowing investors to earn a return on existing infrastructure while leaving risky construction work to the public sector.
“The world’s changed a lot in the last 80 years,” said a top executive at a firm that has invested billions of dollars in energy and transport assets, expressing a widely held frustration at Biden’s slowness to embrace private-sector participation in his public investment programme.
“An entire infrastructure industry’s been born. And there are ways for the administration to partner with private partners, to accelerate, multiply and increase the efficiency of what they’re doing. ”