President Donald Trump has called for increased infrastructure spending throughout his campaign and following his inauguration.
He’s criticized American infrastructure, calling it “crumbling” and refering to U.S. airports as “Third World.”
During a panel discussion hosted by Legg Mason in New York, Robert Amodeo of Western Asset, Derek Deutsch of ClearBridge Investments and Richard Elmslie of RARE Infrastructure discussed how investors might be able to capitalize on potential new legislation regarding infrastructure. (The firms are all affiliates of Legg Mason.)
All were fairly confident that infrastructure projects would move forward under Trump.
“My personal view is that Trump wants to be successful,” Elmslie said. “So the first big project he picks, he needs to pick a project where he’s going to get the support of the state government, because that’s crucial. He needs to pick a project that when they actually execute, construct or renovate … everyone looks like they’re a winner.”
At RARE Infrastructure – where Elmslie serves as founder, co-CEO and co-chief investment officer – the focus is exclusively on global listed infrastructure. Global infrastructure assets are long term developments or projects serving communities around the world. They are usually assets that communities and economies require to function and prosper, such as airports, gas, electricity, water and roads.
Trump’s focus is on similar types of infrastructure projects.
“I think you’ll find the infrastructure projects that [Trump’s] going to focus on are the big ones that the public want to see happen,” Elmslie said. “The public want to see better airports. They want to see better transportation on roads.”
In addition, Elmslie said Trump’s focus is largely on recycling existing infrastructure.
“What Trump is trying to do is really not a lot of new buildings; the vast majority is rebuilding your existing dilapidated infrastructure, which is actually a much lower risk proposition,” Elmslie said.
Elmslie also expects these projects will get up under Trump’s guidance.
“I think you’ll get a high profile [project] up that the public want to see, and he’ll make sure it’s successful,” Elmslie said. Adding later that, “I think Mr. Trump has a high opinion of what he wants to do. He wants to make sure he maintains that image in the market. So this needs to be successful. …
“He’s going to get some of these projects off. Because his ego is that he needs to say ‘I’ve done it.’”
Infrastructure Financing – Getting the Private Sector Involved
Amodeo, who is portfolio manager and head of municipals at Western Asset, discussed the financial challenges facing these projects. The problem is the governments don’t have a lot of money, so where does the money come from?
“Every level of government – federal, state, local – we all know they’re burdened by a large amount of debt,” he said. “And there’s a large number of unfunded liabilities as well in every level of government, and then as a backdrop we have a public that’s reluctant to privatize assets.”
Many of these projects will require private financing – and the private markets are ready, according to Amodeo. “Private capital is being raised,” he said. “There’s hundreds of billions of dollars sitting idle in private equity. There’s plenty of capital available for private debt. The bond market is excited about the opportunities coming their way.”
Elmslie agreed, saying if the framework for a project is there, the capital will also be there.
“Everybody’s been waiting for America to fix its infrastructure,” he said.