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MIP chief: ‘The asset class has come of age’

At a media gathering today, Macquarie Infrastructure Partners Chief Executive Chris Leslie said the US has plenty of reasons to be optimistic about private investment in infrastructure, even as obstacles remain to the market’s development.

After many years of steering away from private investment in infrastructure, the US is finally starting to warm to the idea of public-private partnerships, according to senior executives from Macquarie Group who spoke at a media gathering in New York today.

“One of the things we can say here in 2011 is that the asset class has come of age,” Chris Leslie, chief executive of Macquarie Infrastructure Partners (MIP), said at the event, adding that infrastructure investment is “well understood now, I think, throughout the public sector”.

Leslie, who has worked in the US for 11 years, said Macquarie initially had a difficult time explaining its aims to the US public sector. He said he received “a blank stare” in Albany, the New York State capital, when he tried to suggest that a private operator finance and reconstruct New York State’s aging Tappan Zee Bridge ten years ago.

“We weren’t getting a lot of traction early on,” he said, despite the fact that he and his colleagues had viewed the US as a “fertile” market.

The number of public-private deals hasn’t increased hugely since then, and Leslie said there was more capital available than projects. Nick Butcher, head of North American infrastructure advisory at Macquarie, said he expected the US to see “a handful” of public-private partnerships in the coming year.

Chris Leslie

But by informal measures both Butcher and Leslie said they were observing a shift in US policy and thinking toward PPPs “It’s part of the political debate in just about every state in the country,” Leslie said, noting that “politicians and their staff are well advised by people in the private sector”. Ten years ago, there weren’t as many advisors available.

DJ Gribbin, managing director for government relations at Macquarie and formerly general counsel to the US Department of Transportation, said budget crises made this a “ripe time for governments to consider public-private partnerships”. He highlighted Virginia, Ohio, and New Jersey, as states with favorable schemes for private investment in infrastructure.  He described Ohio, which recently authorised private partnerships just last week, as “one that you want to watch” and said the populous cities of Los Angeles and New York could see further developments.

Obstacles remain

Leslie and Gribbin also both acknowledged that popular sentiment in the US presented a challenge. 

“There is this kind of disconnect in the American psyche about the private sector being irresponsible or otherwise incapable of running some of these assets,” Leslie said.

Leslie also said inexperienced governments often get lost in the “rabbit hole of details” when trying to arrange concession agreements by over-stipulating the conditions under which an asset must be handed back to a government at the end of a concession.

“Some of the processes I think on the government side could probably use a bit more attention in terms of lining up…the sophistication from the buyer and the seller’s perspective,” Leslie said.

Macquarie credited itself, to some extent, with the increased acceptance of private infrastructure investment in the US. Leslie said the idea “really took off” following the firm’s 2005 lease of the Chicago Skyway for $1.83 billion. “Wall Street went from having municipal finance departments to having infrastructure departments” after that deal, he said. 

Leslie's MIP currently holds a 22.5 percent stake in the Skyway. Overall, MIP manages $5.5 billion in assets over two funds. MIP I closed on $4 billion in 2007. MIP II closed on $1.6 billion in 2010, is about half invested. Leslie said the two funds’ commitments includes about $1.5 billion from Taft-Hartley pensions, which are privately managed pensions for unionized US workers.