Investors see ‘perfect opportunity’ for PPP in the US

Principals from Carlyle, Macquarie, RREEF and Industry Funds Management gathered today cautioned that market will not develop across America’s ‘fifty little countries’ without strong leadership from the government in creating incentives for private investment in infrastructure.

There is a “perfect opportunity” for investors to create a viable market for public-private partnerships (PPPs) in the US, but the debate over private ownership of infrastructure assets is far from over and the next 12 months will be crucial in the development of the market.

Those were some of the sentiments expressed by a panel of investment professionals from Carlyle, Macquarie, RREEF and Industry Funds Management at the 2009 Dow Jones Infrastructure Summit in New York.

Timothy Keith, head of RREEF Infrastructure, an infrastructure fund affiliated with Deutsche Bank, said that the industry has a “perfect opportunity” to create a viable market for PPPs in the US. He said there were three factors driving this opportunity: voters’ preferences, the financial crisis’ squeeze on state and local budgets, and the need for job creation.

He cautioned, though, that the industry can’t do it alone. “Government needs to be in a leadership position,” Keith said, urging more legislative support for market creation and education.

Michael Thompson, US executive director for Australia-based Industry Funds Management, said “for PPP to really take off, it has to be federally driven” because “you’ve got 50 little countries here”. This localisation of PPP jurisdictions makes it tough to do deals, he added.

John Flaherty, a principal in Carlyle’s $1.1 billion infrastructure fund said the government can help accelerate the development of the market by providing incentives for infrastructure financing. Among those incentives, he named more funding for the US government’s TIFIA infrastructure credit program and Private Activity Bonds, a form of tax-exempt financing for infrastructure projects.

“If those are not in this legislation, it is my view that the market won’t really develop for another three to four to five years,” Flaherty said, referring to the upcoming reauthorisation of the US surface transportation spending bill. In that sense, the next 12 months will be crucial to the development of the market, he said.

Putting such incentives into the legislation may prove to be difficult, as several key congressmen, including Jim Oberstar, chair of the US House of Representatives’ Transportation and Infrastructure Committee, have expressed strong disapproval of PPP schemes.

“We have not won the debate in the US by any stretch over the private ownership of infrastructure,” said Nick Butcher, senior managing director and head of infrastructure and utilities for the US and Latin America at Macquarie Capital.

“We have to be out there explaining the benefits of the private model,” Butcher added.