1. U.S. Aging Infrastructure
Which Sectors are Primed for Private
Investing Growth?
Date
Ken Herbert
V.P./ Partner
Business & Financial
Services
Bernice Lee
Consultant
Business & Financial
Services
June 2, 2009
3. 3
Infrastructure investing has always been a sector of interest for investors for
its stable and long-term returns
Recently, a few major factors have combined to push infrastructure
investing to the forefront:
PRIVATE CAPITAL
Public-private
partnerships are
essential to bridge the
gap between government
funding and
infrastructure need
PRIVATE CAPITAL
Public-private
partnerships are
essential to bridge the
gap between government
funding and
infrastructure need
CREDIT CRISIS
In the midst of a credit crisis,
investors are eyeing
infrastructure – a stable source
of return
CREDIT CRISIS
In the midst of a credit crisis,
investors are eyeing
infrastructure – a stable source
of return
LACK OF GOVERNMENT
FUNDING
Obama’s stimulus package
allocates $72 billion to
infrastructure
LACK OF GOVERNMENT
FUNDING
Obama’s stimulus package
allocates $72 billion to
infrastructure
AGING INFRASTRUCTURE
Current ASCE estimation of
$2.2 trillion over the next five
years is needed for
infrastructure
AGING INFRASTRUCTURE
Current ASCE estimation of
$2.2 trillion over the next five
years is needed for
infrastructure
Infrastructure Investing At-a-Glance
4. 4
Infrastructure Definition
Facilities, systems and equipment required to provide public
services and support private sector economic activity
Transportation Infrastructure, Regulated Infrastructure, Communication Infrastructure,
Social Infrastructure
Transportation Infrastructure
Bridges
Tunnels
Rails
Transit
Airports
Seaports
Regulated Infrastructure
Electricity Transmission and
Distribution
Oil and Gas Pipelines
Water
Waste Water
5. 5
China:
• Chinese government stimulus
package of $586 billion stimulus
(mainly to infrastructure, rural)
India:
• Plans to spend 8% of GDP a year
on infrastructure projects
Australia:
• Infrastructure deficit is estimated at A$20
billion
• Australia is one of the first countries to
embrace PPPs and expanding access to
private infrastructure funds
UK & Europe:
• For the EU, OECD estimates 4 trillion Euros will be
needed with the bulk for the water sector
• Estimate of 100 billion Euros of Public-Private
Partnerships (PPPs) have been entered into in UK, Italy,
Spain, Portugal, France
•UK leads the PPP market while Europe continues to
develop
Global Infrastructure Opportunity
USA:
• ASCE estimates $2.2
trillion needed over five
years for infrastructure
• Government stimulus
package allocate $72
billion for infrastructure
•Infrastructure asset
privatization is slower
compared to other
countries
Rest of World:
• Latin America will need to invest $100 billion a year for
the next 20 years for its infrastructure
•South America’s biggest infrastructure needs are roads,
bridges, waterways and ports to help lower cost of
exporting
•Africa’s infrastructure needs are estimated at $75 billion
a year with power being the greatest infrastructure
challenge
Source: ASCE, World Bank, Reuters
6. 6
$2.4
$5.2
$17.9
$34.3
$24.7
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2004 2005 2006 2007 2008
Global Infrastructure Funds Raised
Global Infrastructure Private Equity Growth
$ in billions
In the face of the
liquidity crisis private
infrastructure funds
were able to raise
close to $25 billion
In the face of the
liquidity crisis private
infrastructure funds
were able to raise
close to $25 billion
Source: Probitas Partners
Currently 77 Infrastructure Funds are Seeking $92 Billion in Committed Capital
Four Out of The Top 10 Funds are U.S. Based – Seeking $19 Billion
7. 7
GS Infrastructure
Investment Group
GS Infrastructure
Partners II
$7.75 billion
Roads, airports, regulated gas, water &
electrical utilities
Citi Infrastructure Investors
Citi Infrastructure
Partners
$4 billion
Transport, utilities, energy, social
infrastructure
Kohlberg, Kravis Roberts
& Co.
KKR Infrastructure
Fund
$4 billion
No sector focus given but current and
past investments include: energy, waste
management
JP Morgan Asset
Management
JP Morgan
Infrastructure
Investments Fund
$3.1 billion
Bridges, tunnels, toll roads; pipelines,
energy transmission and distribution;
water and waste water systems;
airports, seaports; rail; contracted power
generation
Alinda Capital Partners
LLC
Alinda Infrastructure
Fund II
$3 billion
Roads, bridges and tunnels; airports,
ports and rail; water supply and
wastewater treatment; gas
transportation, storage and distribution;
power generation and electric
transmission; and utility services for
residential, commercial and industrial
customers
Morgan Stanley
Infrastructure Partners
Morgan Stanley
Infrastructure Fund
$1.4 billion
Transportation, energy and utilities,
communications, social infrastructure
A Sample of U.S. Based Infrastructure Funds
Fund Manager Fund Size Sector Interest
9. 9
FACTORS
AIDING
Independence of
infrastructure
assets from
business cycle risk
Independence of
infrastructure
assets from
business cycle risk
Stimulus
package by U.S.
Government
Stimulus
package by U.S.
Government
Pension funds
ideally matched
for infrastructure
investing
Pension funds
ideally matched
for infrastructure
investing
States are cash-
starved
-heightened need
for private
investment
States are cash-
starved
-heightened need
for private
investment
U.S. PRIVATE EQUITY INFRASTRUCTURE INVESTINGU.S. PRIVATE EQUITY INFRASTRUCTURE INVESTING
Aging U.S.
infrastructure
Aging U.S.
infrastructure
Market Forces Driving Infrastructure Investing
The Strong Market Dynamics Will Push Growth in Infrastructure Investing
A Growth Rate of 14-18% is anticipated
10. 10
U.S. Infrastructure Funding Need by Sector
Other includes: Parks & Schools
Source: ASCE
$ in billions
$1.2 trillion over 5 Years is Needed via Private Capital
Aviation D
Bridges C
Dams D
Drinking Water D-
Energy D+
Hazardous Waste D
Inland Waterways D-
Levees D-
Rail C-
Roads D-
Solid Waste C+
Transit D
Waste Water D-
Overall D
2009 ASCE U.S.
Infrastructure Report Card
11. 11
$72 Billion Stimulus Package Designated for Infrastructure
U.S. Government Stimulus Package
Source: Committee on Appropriations Summary
13. 13
Public – Private Partnerships
$2.2 trillion
Estimated Amount Needed
For U.S. Infrastructure
Improvements Over Five
Years
$2.2 trillion
Estimated Amount Needed
For U.S. Infrastructure
Improvements Over Five
Years
$975 billion
U.S. Government Funding of
Infrastructure Need (Actual
Spend plus Stimulus Package)
$975 billion
U.S. Government Funding of
Infrastructure Need (Actual
Spend plus Stimulus Package)
$1.2 trillion
Significant Gap in Funding
$1.2 trillion
Significant Gap in Funding
Public – Private Partnerships
(PPP)
Public – Private Partnerships
(PPP)
PPPs have the greatest advantage to tap private
capital.
14. 14
Public – Private Partnerships
The 2010 administration budget provides a National Infrastructure Bank to
expand public-private sector spending
• Initial funding expected to be $5 billion and increase to $25 billion by 2019
The federal stimulus package will also give help to pension funds by creating
investment opportunities for their infrastructure allocations
• CalPERS
• In the past CalPERS grouped its infrastructure investment with other alternative assets
such as private equity
• CalPERS has stated it would allocated up to $7.2 billion for infrastructure with a net
target return of 5% over inflation over a period of five years
Successful examples of PPP investing
• In 2006, leasing of the 75 year old Indiana Toll Road for $3.8 billion to Statewide
Mobility Partners and Macquarie Infrastructure Partners
• In March 2009, Florida closed a $1.6 billion concession to develop toll lanes on I-
595 with Madrid-based ACS Infrastructure Development
15. 15
Over half of U.S. states have legislation authorizing PPPs
transactions for
Long-term leasing of existing infrastructure
New development of transportation infrastructure
Public – Private Partnership Outlook
Examples of Current Deals in
Development
California’s Port of Oakland: 50 year $700
million transaction to specific port facilities
with Ports America Group
Wisconsin’s Mitchell International Airport:
Investigating feasibly of a long-term lease to raise
$1 billion for transit system over 50 years
Wisconsin’s Water Works: In an effort to reduce
city tax increases and budget cuts, the hope is to
raise more than $500 million for leasing of water
system
16. 16
Potential Risks to U.S. Infrastructure Investing
U.S. Government regulations could hinder private investment in
infrastructure projects
U.S. Government regulations could hinder private investment in
infrastructure projects
Extent of time to bring a project to fruition could also miss the
window of opportunity of viable investors
Extent of time to bring a project to fruition could also miss the
window of opportunity of viable investors
The slow evolution of PPPs in the U.S. could see investments
moving towards other parts of the world
The slow evolution of PPPs in the U.S. could see investments
moving towards other parts of the world
U.S. Government reallocation of infrastructure budget and
resources to other higher priority initiatives
U.S. Government reallocation of infrastructure budget and
resources to other higher priority initiatives
17. 17
Infrastructure Investing Outlook
Opportunities are
available for the
savvy and
disciplined investors
Increasing ROI due
to price moderation
Less leverage
available
U.S. Government fiscal
budget shortfalls are
apparent
Combined with budget
shortfalls, the increasing
awareness of failing
infrastructure leads to
more PPP opportunities
President Obama
administration is focused
on infrastructure and
clean energy
Independence of
infrastructure assets
from business cycle
risk – relatively
recession resistant
Tangible, real assets
are more attractive if
global stimulus leads
to inflation
Political Factors Economic FactorsCredit Crisis Factors
19. 19
Municipal Water
and Wastewater
Market Dynamics
EPA estimates and
investment of $390
billion for waste
water municipalities
Municipalities for
safe drinking
water face $11
billion shortfall this
year
Current Size of
North American
market is $2.74
billion
Market emphasis
on water reuse
and recycling
Forecasted five-
year CAGR is
7.04%
• Strict drinking water and
effluent quality regulations
are forcing utilities to
upgrade current systems.
• Increasing U.S. population
growth is forcing
municipalities to consider
expanding current
facilities.
• Gap between investment
required for infrastructure
development and funds
received by EPA is
constantly increasing.
Current funding is only $6
billion.
Municipal Water and Wastewater Infrastructure
21. 21
Power Generation
Market Dynamics
Future investment is
estimated at $900
billion over next 15
years
60% of circuit
breakers are 30+
years old
Current Size of
North American
market is in
excess of $750
billion
70% of
transmission and
power
transformers are
25+ years old
Forecasted five-
year CAGR is
3.9%
• The U.S. Government fiscal
package allocates $32 billion
to transform energy systems
by allowing for smarter and
improved grid and focusing
investments on renewable
technology.
• There is an existing gap
between production and
consumption of electricity
due to limited capacity—
hence need for new
investments.
• Developments in renewable
energy generation are
expected to drive power
generation infrastructure
investment.
Power Generation Infrastructure
22. 22
MarketEnhancers
Drivers
MarketInhibitors
* Length of arrows indicate impact and
relevance of driver / constraint
Power Generation Infrastructure
Aging Power
Plants
Environmental
Regulations to
Reduce Air
Pollution
Increasing
Power
Demand
EPAct 2005
Tax Benefits
& Incentives
Increase in
Renewable
Energy to Boost
Turbine
Development
Increased
Raw
Material
Costs (Steel,
Copper)
Insufficient
Capacity
Lack of
Power Project
Financing
Due to Long
Payback
Period
23. 23
Airport Industry
Market Dynamics
FAA estimates
$49.7 billion is
required for
infrastructure
development in the
next five years
U.S. government
stimulus package
allocates $1.3
billion in funding
Current size of
North American
market is $15-20
billion
Over the past 30
years passenger
air traffic has
increased seven-
fold
Forecasted five-
year CAGR is 5%
• Capacity issues will either
push airports to expand or
new airports to be built – a
clear indication of the
future outlook of the airport
industry.
• U.S. airports will
continually be facing a
fluctuation of demand, and
at the same time receiving
modest funding increase.
• There is a clear
opportunity given the gap
of government funding and
the need for private
investors.
Airport Infrastructure
25. 25
Road Industry
Market Dynamics
ASCE estimates
$186 billion per year
is needed for road
development
36% of roads in the
U.S. are continually
congested costing
$63 billion in time
and wasted fuel
U.S. highway road
system is valued
at $1.75 trillion
34% of roads are
in poor or
mediocre
condition
Forecasted five-
year CAGR is
between 5 - 6%
• Passenger and commercial
travel on U.S. highways
continue to increase every
year.
• The American Recovery and
Reinvestment Act only
allocates $27 billion for
roads. The Highway Trust
Fund has a balance of $16
billion, mostly derived from
user fees. The funding gap
needs to come via private
investment.
• PPP toll road establishment
has been proven in the U.S.
(ex, Chicago’s Skyway,
Orlando Orange County
Expressway)
Roads Infrastructure
28. 28
Strong growth is anticipated for private infrastructure investing due to
the $1.2 trillion shortfall between:
An estimated $2.2 trillion over 5 years is critical for
upgrading/replacing current U.S. infrastructure
$975 billion U.S. Government is spending on infrastructure projects
Priority will be given to projects that are in need of “gap funding”
Public – Private Partnerships have the greatest advantage to
penetrate private capital
Over half of states have legislation authorizing PPPs with other
states seeking approval of pending legislation
Conclusion
29. 29
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Global Director, Corporate Communications
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jake.wengroff@frost.com.
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