Earlier today, the White House announced that President Biden would spend the next four days in his native Pennsylvania, thus leaving Washington DC conspicuously at the start of the IMF — World Bank Spring Meetings, which coincide with the start of Donald Trump’s televised “hush-money” trial in New York
The “double symbolics” couldn’t be clearer. When European, Asian and Latin American central bankers and finance ministers gather in the US capital, and whilst Trump is “marred in mundane legal troubles” in Manhattan, Biden will be focusing emphatically on more important considerations: the “American heartland” and the economic future of US blue-collar workers and their families…
In many ways, Pennsylvania, the archetypal battleground state for the upcoming US presidential election (November 2024), is also “ground zero” for Bidenomics, Joe Biden’s attempt to bring back a modicum of industrial planning to America (tech protectionism) and “the free world” (G7 PGII, May 2023)
The author of this article, alongside Norm Anderson in the United States and the Hon. Nick Sherry in the Asia-Pacific area, was the first to predict that, to succeed, Bidenomics would need to “go beyond microchip foundries” (CHIPS Act), focusing on massive investments in renewable energy, critical minerals mining, and modern transportation infrastructure (including high speed rail), mobilizing private capital from Wall Street and US pension funds in the process
As the President heads to the Keystone State, we’re republishing Norm Anderson’s seminal Forbes research primer quoting Firzli and Sherry: “The Infrastructure Bill & Pension Funds: A $3 Trillion Action Item“
There is a tide in the affairs of men, which taken on the flood leads on to fortune. Shakespeare
As the Senate’s bipartisan infrastructure initiative moves forward, the talk is of spending rather than of long-term, strategic, 30-40 year investment. It’s a question of focus. The political discussion is also leaving an important tool on the sidelines — at least half of the spend under discussion lies in the traditional domain of private investment — renewable energy, high voltage electricity transmission, broadband, 5G and even social infrastructure are solid private investment opportunities. Pension funds link these two issues. By my conservative calculation, we could easily add $1 trillion – or more – of disciplined capital to long-term infrastructure investment by bringing institutional investors into high priority projects.
In the midst of all the talk of taxes, including raising the gasoline tax, leaving pension funds on the sideline is an unforced error. Bringing pension funds directly to infrastructure project investments is a big lift to be sure, but it would be transformative, more than doubling our infrastructure investment capacity – and adding discipline to our investment decisions and management. Moreover we need these funds: at 10% of pension fund assets our country would all of a sudden have $3-4 trillion in dry powder, to revitalize old investments (Army Corps and DOI reservoirs), comfortably make new investments (Gateway, Texas Central high speed rail), and project strategic investments for the next generation (digitization and electrification, innovative strategies to remove pressure on the environment).
The World’s Pension Funds & Infrastructure: I recently participated in a sharp panel discussion organized by the World Pensions Forum and the Singapore Economic Forum, coinciding with the G7 meetings. The topic my panel addressed was “Infrastructure as an Asset Class, Ten Years On.” The problem is that infrastructure projects are not now an asset class as far as U.S. pension funds are concerned.
Canadian pension funds are another story. They tend to invest over 10% of their assets in infrastructure, making cutting-edge investments, like Ontario Teacher’s Pension Plan’s (OTPP) 40% equity investment in the U.S. offshore wind firm Anbaric, and they own – and drive innovation in – much of the U.S. renewable energy and natural gas business. Australian pension funds – through innovative companies like Macquarie, TransUrban, IFM and Plenary – own the vast majority of U.S. P3 projects (at least those not owned by Spain’s ACS).
The architect of Australia’s pension fund shift into infrastructure — former Australian minister Nick Sherry — highlighted the fact that the big advantage of pension funds is that ‘you get equity type returns without the volatility.’ This is exactly the point, particularly now when inflation is an increasing concern.
The graph below [“Modern Asset Allocation Matrix”], prepared by Nicolas Firzli, Director-General of the World Pensions Council, allows you to map the future of institutional investment. The study from which it is drawn emphasizes the fact that many asset owners could improve their yields by doubling their allocation to infrastructure projects over the next four years.
This doubling is going to happen — it should be a key objective of the Biden Administration that U.S. pension funds participate, helping us achieve otherwise unachievable domestic investment levels, while at the same time allowing us to strive to achieve currently unattainable geopolitical objectives.
Creating the Infrastructure Innovation Machine. For this to happen we will need to create an elegant mechanism that can confidently channel our savings into the systematic creation of infrastructure assets. Infrastructure investment is not just a financial investment — the real point is that it creates hope, and its yield is a better future. The will is already in place: in conversations with officials in states around the country I constantly hear them wonder why their pension funds aren’t investing in our infrastructure assets.
This new U.S. infrastructure investment mechanism would have three components:
First, there has to be something to invest in – this is our money, we want good investments. Australia made their shift work because, as Nick Sherry highlighted, they were ‘privatizing everything in sight.’ They recycled their old assets, creating new ones while revitalizing old ones.
We have an aversion to privatization, of course, but there is another option —- select long-term concessions from the roughly $43 trillion in U.S. infrastructure stock that is nearing retirement age. The supply of great assets that our pension funds could revitalize is extraordinary. It is also urgent – 70% of our current infrastructure budget goes to the operation and maintenance of old assets, and if we don’t address this issue we will be constantly disappointed by our infrastructure spend.
Second, because governance is crucial – infrastructure is a public good, after all – we need to fix the terribly broken regulatory system. I am struck by the antitrust revolution that Lina Khan is about to bring to the FTC, and wonder if that same kind of logic might also apply to NEPA and the disheartening ambiguity and complexity around infrastructure project permitting (taking nearly nine years, on average, to move a highway project through the process). Making government decisions less complex, less ambiguous, more predictable and speedy is not just logical, it is critical to the future of the infrastructure marketplace — and so to our country. [fin]
Later this year, I’ll be presenting the updated & expanded version of our “Modern Asset Allocation Matrix” at the Greenwich Forum, 21 & 22 October 2024. Learn more: