Talking Infrastructure
Robert Aguallo Jr. talked to M&A last month, discussing the trends that brought him to Cardinal America Funds.
June 9, 2008
By some estimates, the United States will require roughly $1.6 trillion of investment into its infrastructure over the next five years. Considering the budget quandaries facing many states and even the federal government, the opportunity for private investors continues to expand. It has drawn some of the smartest investors into the burgeoning infrastructure asset class, among those Robert Aguallo, Jr., who was recently tapped to serve as a managing partner at Cardinal Americas, which controls a $150 million private equity focused exclusively on the space.
Aguallo was formerly the general manager of the Los Angeles City Employees’ Retirement System (LACERS), where he oversaw roughly $12 billion in investments. Prior to that he spent time as the chief operating officer for investment operations at the California Public Employees’ Retirement System (CalPERS).
Following his move, Aguallo spoke to Mergers & Acquisitions Journal about the opportunity that drew him to the infrastructure space. The following is an edited version of the conversation.
M&A Journal: What are your thoughts about the trends facing the infrastructure sector now?
Aguallo: There is more national attention now being paid to infrastructure needs than there has been in the past.
For example, NBC Today just did a series of coverage on the different infrastructure needs that are facing this country. And all of the presidential candidates are talking about stimulus packages that would put a focus on infrastructure and would create jobs.
You have also seen a demographic shift in which there are more individuals using public transportation, and at the same time there is a great need for infrastructure problems involving our roads, bridges and tunnels to be addressed.
Over the past year there has been over $100 billion in bonds that would cover increased capacity for energy, water, and waste treatment facilities. How that plays into the investment world is that private equity groups are increasingly looking to play a role. The Carlyle Group, Macquarie, and several other firms have all set up infrastructure investment funds.
M&A Journal: I imagine this isn’t just a U.S. phenonomen.
Aguallo: The infrastructure market in the U.S. is very promising, but also I see global infrastructure developments occurring worldwide. For example, Africa, Europe, the Middle East, South America, Asia, South Korea all represent areas investors are looking. It tells you that globalization is happening.
M&A Journal: It’s not as if this need developed overnight. Why is this just starting to emerge now?
Aguallo: Most of these funds have been developed in 2007 and 2008. The focus on infrastructure in the private equity world in the U.S. is a fairly recent development.
In addition, CalPERS is very close to approving a separate infrastructure asset class. You have several different labor groups and pension funds that recognize that infrastructure is an area that will not only create jobs, but will also provide a valuable investment vehicle for pension and retirement investments.
M&A Journal: There has been a lot of talk coming out of Washington and out of various local governments regarding the demand for private investment in the asset class. Pennsylvania’s Governor Edward Rendell, for instance, has talked about the urgency in which governments need to solve the problem, and last month worked out a deal to sell a 75-year lease to the Pennsylvania Turnpike for $12.8 billion. Is it a case in which the government needs the help of outside investors?
Aguallo: I think this reinforces the trajectory that infrastructure is getting in terms of public recognition.
How bad is our infrastructure? It’s hard to put a figure on it that, but it’s a good development that our infrastructure needs are receiving more recognition.
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