INFRASTRUCTURE INITIATIVES UNDER PRESIDENT TRUMP

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1 8/21/2017 Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments Presented by Allan Emkin September 11, 2017 Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 1 INFRASTRUCTURE INITIATIVES UNDER PRESIDENT TRUMP President Trump s $1 trillion infrastructure plan remains unveiled likely to be pushed to next year The plan seeks $200 billion in federal spending and $800 billion from private investors over the course of 10 years An effort to boost private investment, increasing state and city-level public private partnership ( PPP or P3 ) projects P3s currently account for less than 5% of infrastructure investment in the U.S. States continue to pass P3 legislation 35 states, the District of Columbia and one U.S. territory have now passed P3 legislation Executive order issued to establish an infrastructure advisory council with a focus across all infrastructure sectors Required overhaul of tax codes needed, tax reform likely to come first, along with the finalization of the federal budget Meanwhile, as local municipalities await more details on federal funding, less bonds are being issued for infrastructure projects Municipal deals to fund projects are down 19.4% compared to last year, outpacing the drop in the U.S. bond market with total issuance down 13.1% Deals coming to market are priced high Initial news of the infrastructure plan is already drawing interest from global investors Will U.S. institutional investors follow? Source: Bloomberg, Meridiam, U.S. Department of Transportation, Thomson Reuters Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 2 1

2 8/21/2017 CASE STUDY: CANADA Established $186 billion long-term infrastructure plan via direct government spending and private sector / state-controlled institutional investor investments Canada Infrastructure Bank operational by year end 2017 Canada s largest pension plans significantly invest in infrastructure with large, established infrastructure portfolios and continue to target global opportunities Caisse de Dépôt (CDPQ) ($15 billion infrastructure portfolio) $6 billion investment in a new commuter train network in Montreal (51% ownership stake) Established subsidiary, CDPQ Infra, to efficiently complete public infrastructure projects Ontario Municipal Employees Retirement System ($18 billion infrastructure portfolio) Established infrastructure investment manager, Borealis Infrastructure Recently entered the South American infrastructure market Canada Pension Plan Investment Board ($24 billion infrastructure portfolio) $1 billion investment in a Spanish gas distribution business Will invest up to C$4 billion in a single investment While Canadian pension plans are leaders in direct investing in infrastructure, investing globally, there has been little activity in domestic investments Significant interest in foreign ports (Australia and New Zealand) and airports (London City Airport) The infrastructure bank is expected to aid in securing investments from domestic investors However, the public is wary of privatization and current P3 opportunities in Canada are below institutional investing levels Source: 2016 Canadian Infrastructure Report Card Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 3 CASE STUDY: AUSTRALIA Australian pension plans have been investing substantial amounts of capital into local infrastructure projects well before the rest of the world Australian retirement funds account for $A100 billion in infrastructure assets They are only now eyeing U.S. opportunities as they seek global opportunities AustralianSuper Cautious on all opportunities, including U.S. opportunities, due to high pricing; recent global investment with a $A6 billion stake in New South Wales state power network Established government organizations dedicated to infrastructure Infrastructure Australia founded in 2008, creates long-term infrastructure plans on national and state levels Across all sectors, the plan pushes for privatizing assets Australia is on the move to sell infrastructure assets in an effort to fund new infrastructure projects Offering tax incentives for offshore funds that operate infrastructure assets TheP3marketinAustraliacontinuestogrow Established National PPP Policy and Guidelines All levels of government will consider a P3 for any project with a capital cost greater than $A50 million Source: Bloomberg, Infrastructure Australia, EY Infrastructure Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 4 2

3 8/21/2017 CASE STUDY: UNITED STATES According to a 2017 analysis by the American Society of Civil Engineers, the U.S. has more than a $2 trillion gap between current funding and estimated needs for surface transportation, airports, water, wastewater, inland waterways, and other infrastructure projects Significant need for public funding U.S. pension plan infrastructure portfolios are growing CalPERS - $2.6 billion infrastructure portfolio 1% of total fund; 1% target, included in Real Assets allocation CalSTRS - $2.3 billion committed - <1% of total fund; part of 2% target Inflation Sensitive allocation Oregon Investment Council Infrastructure accounts for 25% of the Fund s alternatives allocation representing $1.2 billion; target increasing to $2.2 billion In addition to larger pension plans, many smaller plans are also investing in infrastructure SCDCL LiUNA implemented a $35 million targeted infrastructure investment platform focused on Southern California Employees Retirement System of Rhode Island increasing policy target for infrastructure Source: American Society of Civil Engineers, Moody s, Meridiam Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 5 CASE STUDY: UNITED STATES Private U.S. infrastructure projects have been slow to gain momentum As states pass legislation and gain best practice experience, utilization of P3s in infrastructure projects are expanding to include transportation, social and schools More investment managers are entering the P3 space generating potential opportunities for institutional investors: Meridiam Strategy: greenfield focus, P3 structures, contract based revenues U.S. projects: Presidio Parkway, Long Beach Courts, La Guardia, Port of Miami Tunnel Global Infrastructure Partners Recent close of the $15.8 billion GIP III Track record includes several airports and ports including London City Airport, London Gatwick Airport, and Port of Brisbane P3s are not without risk Chicago Skyway private owner bankruptcy resulted in significant construction delays on a partially completed road with the project falling back onto government to complete Texas 130 toll road toll revenues did not meet expectations Many infrastructure needs are for projects that do not generate direct revenue, making them less appealing as a P3 structure Is government funding is the only option for projects lacking revenue streams? Source: American Society of Civil Engineers, Moody s, Meridiam Opportunities for Pension Funds in the Age of Trumponomics: Infrastructure Investments 6 3

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