A city of substance

The Infrastructure Investor: Chicago forum provided timely market updates on some important issues as it became clear that there was more to the city than its association with long-windedness. Cezary Podkul reports

Many people erroneously think that Chicago was nicknamed the “Windy City” for its gusty weather. And indeed, when a who’s-who of the industry gathered in Chicago on November 18th and 19th for the Infrastructure Investor: Chicago forum, there was a healthy gust of wind blowing outside.

But it was not a meteorological phenomenon, rather the long-windedness of the city’s politicians that gave rise to the moniker. And though it proved windy outside, there was very little long-windedness inside the event.

Day one kicked off with insights from a panel of fund managers about where they see opportunities in the coming years. As expected, the energy and transportation sectors emerged as the two major food groups, but with different views on which geographies and sub-sectors of the two markets would be most attractive.

Meridiam’s John Dionisio told delegates that transportation deals will continue to grab the headlines in the US market. But Morgan Stanley Infrastructure Partners’ John Veech said: “At least from what we’re seeing in our pipeline, it’s very much energy-centric in the US and primarily transport-centric outside the US.”

Macquarie’s Chris Leslie, meanwhile, offered the optimistic view that there is now “the complete set of elements necessary to move forward” with public-private partnerships (PPPs) in the US.

Renewable sceptics

On the energy front, though, there was some short-term scepticism expressed with regard to the renewable sector in the US. The desire to invest is there, both among investors who have the mandates and the appetite for renewable exposure and state governments that that are seeking to facilitate that investment by requiring a portion of their electricity supply to come from renewable sources.

But fund managers speaking on an energy panel agreed that the US’ regulatory framework isn’t yet conducive to private investment in renewables. They pointed to the expiration of government subsidies called production tax credits, or PTCs, for wind projects at the end of 2012, followed by expiration of PTCs for other renewable projects in 2013, as one major element of uncertainty. These expirations could make renewable investments more difficult to complete, said Bill Green, chief executive officer of Macquarie Renewable Energy Partners. ArcLight co-founder Robb Turner said his energy-focused private equity firm had had to pass on a number of renewable investment opportunities because the economics simply didn’t work.

But it wasn’t all gloom. One of the most encouraging figures presented at the conference was a break-down of all the pension wealth that exists in the US today. Richard Little, Director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California, said there is $13 trillion worth of pension savings available in the US. Of that, $2 trillion is accounted for by public pension funds that have already begun investing in infrastructure. If even a small portion of these savings get channelled into infrastructure, it could mean a very strong, viable market in the US. The key, as ever, will be educating investment officers about the benefits of investing in the asset class.

Growth plans

And what conference would be complete without an existential debate about how to grow the market? On day two, Rick Norment, executive director of the National Council for Public-Private Partnerships and Shirley Ybarra, senior transportation policy analyst at the Reason Foundation, squared off about whether the states or the federal government is better prepared to drive progress in PPPs. Norment thought the government was in a position to provide some wise legal incentives to make states want to further develop their programmes, but Ybarra was sceptical about Congress’ ability to do so – and the potential to do greater harm if they try to intervene. The audience, for its part, sided with the states.

And, judging by comments made by two state officials on the sidelines of the event, these are likely to remain in place despite the recent elections. California Secretary of Business, Transportation and Housing Dale Bonner and Georgia Transportation Commissioner Vance Smith each said that they’ve built solid-enough foundations for their PPP programmes that they will continue to function despite changes in administration in each of their states.

“No doubt – the seeds have been planted,” Bonner said. And they’re being planted even deeper with a new initiative to train mid-level managers within the California Department of Transportation and other agencies in PPPs, starting with online learning modules.

In Georgia, “I’m very comfortable with the change in leadership. I think we’ll see us continue to go down the road,” Smith said. The only caveat is that leadership comes from the top: “We do not want to get out in front of the governor, we want to be side-by-side with the governor [Republican Nathan Deal]. He knows that.”