Private equity firms concerned about $1 trillion infrastructure bill

Private equity firms concerned about $1 trillion infrastructure bill

- Private equity firms are concerned that the long-awaited $1 trillion infrastructure bill https: world us lawmakers - gird-cbo analysis - 1 trillion infrastructure bill - 2021 -- 08 -- 05 - under negotiation will not create sufficient opportunities for them to invest in lucrative assets such as toll roads and airports.

The draft bill would force states and municipalities seeking federal funding to show they have considered using public - private partnerships to procure projects. Yet it stops short of instructing local authorities to use P 3 s.

This is a blow to buyout companies such as Blackstone Group Inc, KKR Co Inc and Brookfield Asset Management, which raised hundreds of billions of dollars to invest in infrastructure. They had lobbied through organizations such as the Global Infrastructure Investor Association for greater participation in bankrolling the projects.

Many U.S. cities and states have resisted the use of P 3 s because they do not want to share the revenue generated by projects with private investors or give up control over how the projects are procured, like the number of jobs created and how much they will pay. This is despite many government-funded projects suffering from delays and budgeting overruns.

Several municipalities also enjoy access to the $4 trillion U.S. municipal bond market, which allows them to pay for these projects but has left them highly indebted.

With states accounting for 87% of U.S. government-owned infrastructure, some private equity fund managers said the bill can do little in its current form to advance the use of private capital in infrastructure.

If you want the private sector to participate, you need to embrace public-private partnerships. I don't see enthusiasm from President Biden either on the part of his administration or the Republicans to make it an essential element of the plan, said Sadek Wahba, managing partner at I Squared Capital, which has $30 billion in infrastructure assets under management.

KKR and Blackstone declined to comment. Brookfield did not immediately respond to a request for comment.

The United States is behind other major economies in utilizing private investments in infrastructure. It announced less than half the number of so-called Public-Private Partnerships which were launched in Europe between 2005 and 2014, according to data from the World Bank and the European Investment Bank.

The draft bill, which has yet to be approved by the U.S. Senate and House of Representatives, would require local authorities that are applying for federal funding to cover project costs of more than $750 million to conduct a value for money analysis on the use of P 3 s. There is no obligation on the local authorities to use P3 s after they conduct the analysis.

The federal government provides largely funding, but state and local governments must come up with the projects, said Emmett McCann, a co-portfolio manager of about $4 billion of infrastructure assets for Oaktree Capital Management LP.

Lawrence Slade, the chief executive officer of the Global Infrastructure Investors Association, said there was little a local bill could do to compel federal authorities given the decentralized procurement of U.S. infrastructure. He threw out but added that it at least opened the door for states to use more private capital in the financing of infrastructure.

Mistrust of private capital runs deep in some cities. Among these was Chicago, where bidders canceled a deal with Midway Airport in 2013 after the city backed out over the city's insistence on adding taxpayer protection to the contract, including a short lease term and revenue sharing.

An earlier version of the bill had provisions for a $20 billion infrastructure bank which private equity fund managers said could have helped seed P 3 s. Issues over whether bank funding should be tied to setting minimum thresholds for workers have sank the idea, Reuters reported last month.

North America-focused infrastructure and investment funds, which are dominated by U.S. management firms, raised $53 billion last year, from $55.5 billion in 2019, according to data provider Preqin. Opportunities for them to deploy such capital in the United States have been mainly in the private sector, with investments focused in the energy and telecommunications sectors.

Karl Kuchel, chief executive of Macquarie Infrastructure Partners, which has about $10 billion in U.S. infrastructure assets under management, said he hoped that the bill's requirement of P 3 s would over time result in some local authorities seeing their merits.

It will take some time for this to work its way through into specific partnership opportunities, Kuchel said.