Institutional investors – pension funds, sovereign funds, endowments and family offices – control an enormous amount of investable capital. Estimates of their investment capacity range up to $100 trillion total, worldwide. Historically most of them have invested passively through funds managed by others, surrendering substantial fractions of the returns from these investments to the investment managers. Infrastructure, with its long-term, inflation-adjusted, moderate risk_return cash flows, represents an ideal kind of investment for these investors. However, infrastructure projects are all unique and involve multiple kinds of risks in each phase of their development, that require specialized skills to evaluate. A few large pensions and sovereigns have developed the internal capacity to evaluate, invest in and manage infrastructure projects, with returns offer exceeding 12 percent. The costs of developing this capacity represent a small fraction of the fees typically paid to investment managers. Other institutional investors can benefit from lessons learned by these pensions. Pension funds that are too small to justify doing this can band together and set up aligned investment managers owned by them to invest their syndicated capital.
Ashby H.B. Monk and Rajiv Sharma
Ashby H.B. Monk, Raymond E. Levitt, Michael J. Garvin, Andrew J. South and George Carollo
Important alternatives have developed to augment traditional modes of creating and supporting infrastructure by public financing overseen by public authorities. One of these is the public_private partnership (PPP) which joins a government agency with a private project-based legal entity to finance, design, operate and maintain a facility for use by the public. PPPs are defined and differentiated from other types of project governance arrangements. Several of their subtypes are described and a brief history provided of the changing pattern of connections linking public and private entities in the provision of public infrastructure. Some of the most common myths and misconceptions characterizing the costs and benefits of PPPs are identified and discussed. The chapter concludes with a set of recommendations regarding how this form can be more productively employed in developing infrastructure projects in the United States.