Run off the road

While Barack Obama has said that his proposal to increase public funding for US infrastructure projects such as road construction could help stimulate the economy and create up to two million jobs, there are fears that his plans could also crowd out private investment.

Obama has backed a measure initially proposed by senators Chuck Hagel and Christopher Dodd in 2007 to create a Nat ional Inf ras t ructure Reinvestment Bank that would use $60 billion in federal funds over the next 10 years to lend to government entities for investment in projects such as roads, bridges, power plants and schools. A recent report by industrial market research firm SBI estimates that up to 29 percent of the $60 billion will go towards paving roads throughout the country.

This could result in a profound effect on infrastructure investing in the near term, says Jeffrey Hahn, managing director and chief financial officer of Morgan Stanley Capital Partners and Morgan Stanley Infrastructure Partners. “There are certain asset classes within the infrastructure sector where the government provides a much cheaper source of capital, so why would some borrowers come to an infrastructure fund if they could go to this bank?” asks Hahn.

One of the areas where the impact is likely to be most evident is public domain assets such as roads that are owned and controlled by governments, which in many cases will be looking for cheaper financing. However, for privately held assets such as utilities and pipelines whose owners will not have similar access to government funding, private infrastructure investment funds will likely see better opportunities.

Morgan Stanley insists Obama's proposal will not alter its investment plans this year. The firm closed its latest infrastructure fund on $4 billion in 2008 and won a $1.2 billion deal to operate Chicago's metered parking system for the next 75 years. Hahn says infrastructure is still an attractive sector in the current environment, with pensions continuing to express interest due to steady returns in the mid-teens. “There's a lot of infrastructure opportunities out there, so I don't think there is a market concern about finding deal flow and places and assets to invest in,” he adds.

J Christopher Flowers, the head of eponymous private equity firm JC Flowers, said at a conference in New York the firm was targeting troubled financial institutions in line to receive assistance from the US government. Flowers has already been part of a consortium that completed one such deal – the $13.9 billion buyout ofmortgage lender IndyMac.

Z Capital Partners, a Chicago-based alternative asset manager, held a first close on $100 million for its debut private equity fund to invest in midmarket distressed and turnaround situations. The firm is targeting $500 million in total and hopes to reach that goal by year's end. Z Capital was founded by James Zenni, co-founder of Black Diamond CapitalManagement.

The Blackstone Group and Hicks Acquisition, a special purpose acquisitions company, have changed an agreement to take Graham Packaging Holdings public in order to make it easier for either side to terminate the deal. Hicks agreed to purchase Graham in partnership with Blackstone and the Graham Group, the Graham family's private equity firm, for $3.2 billion in July 2008.

John Barber, head of Citi Private Equity, has decided to leave the firm after nine years leading the private equity unit. The unit deploys capital from Citi's balance sheet as well as third parties to make private equity fund commitments, mezzanine and non-control direct private equity investments.

Buyout firm WL Ross & Co. has agreed to purchase more than 68 percent of First Bank & Trust Co, a Florida-based bank with $83 million in assets. ChairmanWilbur Ross has said he will look at other possible banking acquisitions once the deal receives regulatory approval.

Atlas Venture, an international earlystage investor in technology and life sciences, has closed its eighth fund on $283 million, short of its $400 million target. The firm, which closed its seventh fund on $385 million in 2006, initially went to market with a $500 million target early last year.

The $1.5 billion Louisiana Sheriffs' Pension and Relief Fund has decided to avoid committing to private equity until the markets show signs of improvement. The pension had been considering making a foray into the asset class, along with an allocation to real estate, but appears to have lost interest for the time being.

Australian investment manager AMP Capital Investors has hired Californian private equity adviser StepStone Group tomanage and advise its Future Directions Private Equity Funds to help the firm take advantage of opportunities to buy discounted assets. The fund offers investors a “single access point” to a combination of global investment managers and a diverse mix of asset classes.

Forsyth Capital Investors, led by former Bank of America private equity veterans, has launched a $100 million debut fund focused on investments in manufacturing, business services and distressed and turnaround opportunities. The firm is led by Chet Walker, founder of Banc of America Capital Investors, and Kyle Chapman, another Capital Investors veteran.

The head of private equity for the $119 billion California State Teachers' Retirement System, Réal Desrochers, has retired. Two of the pension's four alternative investments portfolio managers, Margot Wirth and Seth Hall, have been named interim co-directors until CalSTRS finds a permanent replacement , a spokeswoman confirmed. Hall joined the US public pension in 1999, while Wirth was hired in 2000. Executive search firm Korn/Ferry will conduct a global search for a new head of private equity.