At the start of the month, the Financial Times reported that UBS had raised more than $1.5 billion dollars for a long-term infrastructure investment fund. The bank has plans to raise even more in a second round.
The fund is targeting a relatively high internal rate of return of between 10 and 13 per cent a year and says it is currently returning 13 per cent.
Its investments will focus on established infrastructure in stable, well-developed countries, which often operate as virtual monopolies and generate a lot of free cash flow.
Steve Jacobs, head of infrastructure asset management at UBS, says the new fund will make direct investments in companies and projects; the fund, he tells the Financial Times, has already taken stakes in Northern Star Generation, a US power generation business, UK-based Southern Water and Saubermacher, a European waste management company.
The move, according to the UBS press release, “underlines the sector’s relative resilience to the financial crisis.”
It will be interesting to see whether new hybrid forms of public and private investment in infrastructure emerge over the next couple of years.
Are we really headed for a “new New Deal”– or for something more ad hoc?
To alleviate the strain placed on its economy by the world financial crisis, China is planning an “infrastructure spending spree,” according to an article in today’s Wall Street Journal.
The $586 billion stimulus package unveiled this week will go mostly toward building highways, railroads and airports — to connect rural areas with cities, make industry operate more efficiently and help farmers bring goods to market. The plan will give China 53,000 miles of highways; the U.S. Interstate system developed by Eisenhower and realized in the last half of the last century stretches 47,000 miles. The Chinese plan sounds distinctly 20th century, designed to stimulate the economy without too much regard for the environmental impact.
Meanwhile, here in 21st century America, our political leaders and their economic advisers are also touting infrastructure investment as a way to shore up our failing economy. It remains to be seen whether there will be enough pressure on our leaders to make smart choices and the right investments, to convert our existing, inefficient infrastructure to more energy-efficient, sustainable purposes.
In a blog post on Talking Points Memo today, Obama economic adviser Robert Reich talks about what it’s going to take to get out of the “mini-depression”: more spending by government, “the spender of last resort” when consumer spending slows and investors are shy.
Government will have to spend “a lot,” Reich argues, $700 billion in the next year alone (many big rescue plans come these days with $700 billion price tags; I don’t know why that seems so often to be the magic number). And the spending will have to be, mainly, on infrastructure:
…repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard’s Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Some of Obama’s critics on the right have predicted that he will be another Jimmy Carter. His own transition team has been reading about FDR’s first 100 days. But to me he looks more like a 21st century Dwight D. Eisenhower in civies.