Investors, Next Right
In 2005, the city of Chicago sold a 99-year lease for the right to manage its Skyway toll road for $1.8 billion. Over the past few years, a number of similar deals have put public infrastructure in private, for-profit hands.
The move toward privatized public infrastructure has not been a dramatic one in the U.S., but localities agree to these deals because they bring in money and make costly, burdensome structures someone else's problem. This, coupled with the demands of aging infrastructure, could present an up-and-coming opportunity for investors.
Matthew McCall, president of Penn Financial Group, says that while infrastructure may not be a great investment in the short term, its long-term prospects are good due to governments' need for cash and a trend toward privatization. He also notes that global infrastructure needs reach into the trillions of dollars, so many infrastructure investment deals are restricted to individuals or firms willing to invest millions. But smaller investors can still find some avenues to potentially reap the rewards of infrastructure privatization.
Adam Fleck, an analyst at Morningstar, says the dominant player in the market is Australian bank Macquarie. Macquarie Infrastructure Group has interests around the world, and since listing in 1996, its compound annual return has been 17.8 percent (to June 2007). Few of these companies are listed on U.S. exchanges since most infrastructure privatization has happened--and will continue to happen--abroad. Aside from Macquarie stocks in North America (MIC on the New York Stock Exchange), other infrastructure-related buys may include PowerShares Global Water Portfolio (PIO); Veolia Environnement (VE), a French environmental management company; and three Mexican companies that manage airports (ASR, PAC and OMAB).
Says McCall, "Products will follow the money when there's this amount of money being spent in such a niche area."