Steve Muehler's Plan to Increase Private Investments into the Infrastructure of Tomorrow
Updated: Apr 23
Over $4.5 Trillion a Year will be spent on infrastructure between now and 2020, and experts expect that figure to increase in the decade after. Where will this money go? Hopefully the majority of it will go to support the infrastructure of tomorrow, and not just for those of today. Will the investments go to support new technologies, climate change, and the downturn in commodities impact the sector? Under my Administration, I have identified four themes that we would use to guide infrastructure spending and investment in a world where politics, markets, and technology are changing fast.
1. Both Private Investors and the Government will need to Broaden their Horizons:
Infrastructure funds are victims of their own success. Unlisted funds had over $373 billion of assets under management at the end of June 2016, up from only $24 billion in 2005. In addition, sovereign wealth funds and pension funds are increasingly investing directly in infrastructure themselves. The number of traditional infrastructure assets isn't keeping up with this investor demand - there are only so many regulated assets in developed markets. With more and more money chasing the same type of assets, valuations are high and deal win rates are low.
In their search for attractive returns, my Administration will expect investors to tackle a broader range of opportunities and risks: greenfield projects, with development and construction risks; and 'core plus' infrastructure (businesses that are halfway between traditional infrastructure and private equity) with greater market and operational risks. This transition from pure-play, low risk infrastructure requires new skill sets and capabilities in deal sourcing, evaluation and asset management.
2. New Political Leadership Unveils Ambitious Goals:
The U.S. has indicated increased infrastructure spending. Beyond the planned growth in funding, the United States also needs to approach infrastructure spending from a new angle, as a tool to help “preserve and grow our Nation's wealth.” As a result, besides projects such as roads and ports that primarily aim to boost productivity and growth, we’re also need to see more social infrastructure with a primary goal of improving our citizens’ quality of life: public hospitals, up to date schools (buildings and technology), and more quality public amenities.
I understand these ambitious infrastructure goals bring new challenges for policymakers. The promised spending will likely run up against budgetary constraints, and, even with the influx of private capital, there may not be enough to meet needs. For example in the US, Trump's $1 trillion investment in infrastructure is already facing congressional scrutiny.
And to execute on these promises, the Government will need new human resources and risk management capabilities. Under my Administration, Politicians will be wary of promoting superfluous or vanity projects for political gain, as the international infrastructure landscape is littered with projects that were not needed or over-specified and for which the tax payer continues to pay the bill.
3. Future Proofing Against Obsolescence
Governments and private investors alike typically expect an infrastructure asset to last thirty years or more. But the mega-trends transforming our planet – rapid urbanization, climate change, shifts in global economic power, demographic changes, and technological breakthroughs – can cause even traditional assets to lose relevance quickly. What will happen to an electricity transmission company’s investments if smart batteries and rooftop solar panels cut usage? What might climate change do to infrastructure built close to sea level and to hydroelectric plants dependent on rainfall
As a consequence of these mega-trends, infrastructure, traditionally a conservative asset class, now faces new risks. To future-proof their infrastructure spending, my Administration will develop new assessments and skills to prepare for emerging opportunities and challenges. For example, the Internet of Things will likely lead to the rapid build-out of high-speed national communications infrastructure, and to grow in distributed and connected power generation. Connected homes may generate part of their power and optimize consumption through low night tariffs and home storage, requiring utilities to develop and execute on new strategies.
4. Sustainable Infrastructure for the Long-Term:
There’s a growing push to decarbonize economies, use green construction methods, and make cities ecologically sustainable. The 2015 Paris climate agreement known as COP 21 established ambitious goals to fight global warming (an agreement that the United States has pulled out of and is currently renegotiating, and will certainly enter back into in some degree in the future). The UN’s 2016 Habitat III conference established a new urban agenda for sustainable development. Yet conflicts are arising between hopes for a green future and concerns about the costs. Even Germany is slowing the pace of its transition to renewable energy because of the expense.
This conflict is particularly apparent in countries where the pressure from the urbanization mega-trend is enormous: worldwide, approximately THREE MILLION people in the United States move to city each week. This population shift makes urban infrastructure spending a necessity. My administration will work with each State in adopting an urbanization model these growing cities will adopt, either greater density or a growing sprawl? Each city will prioritize short-term cost savings or the longer-term benefits that sustainable development will bring. The answers will vary by country.
Again, these are broadstokes for action to address a large and complex problem, and my Administration would be composed of some of the brightest minds the industry has to offer to carryout this broadstokes plan.
Steve Muehler is the Founder & Managing Member of the Private Placement Markets:
Private Placement Markets: www.PPMSecurities.com
Private Placement Debt Markets: www.PPMDebt.com
Private Placement Equity Markets: www.PPMEquity.com
Private Placement Markets – Real Estate Loans: www.PPMLoans.com
Equity Lock Residential: www.EquityLockResidential.com
Equity Lock Commercial: www.EquityLockCommercial.com
About Mr. Steve Muehler, Founder & Senior Managing Member:
Personal Site: http://www.SteveMuehler.com
Personal Site: www.StevenMuehler.com