When It Comes To Public-Private Partnerships, Follow The Smart Money

Investor Jim Chanos on Il Trumpe’s infrastructure proposals (boldface mine):

It’s going to be public-private partnerships. I have a long experience with those: I was short Macquarie Bank, which was the originator of these sorts of things in ’05-’06.

Macquarie started the idea of infrastructure as an asset class idea. But it always revolved around things like parking structures and toll roads — anything where you can have clearly definable cash flow and where you can get an immediate cash payment for use. It’s not water culverts or county service roads. Macquarie did a famous deal on the Indiana toll road (which filed for bankruptcy in 2014, collapsing in debt). It’s things like that.

Because private investors need high rates of return, these deals generally haven’t been good deals for anybody. They haven’t generated the cash investors anticipated. Consumers end up avoiding the toll roads or using different parking facilities if you raise the rates too much. In reality, we already have something [that] create[s] these infrastructure projects: It’s call municipal finance, where municipalities and states can set up funding vehicles and sell bonds to finance the projects.

Now we’re told that the private sector will be able to do this better. Well, they might be able to do it better and faster, but only for a small number of projects. Real projects that we need — repairing, refurbishing, whatever — are tougher. You’re not going to get private investors to sign up for those without definable cash flows. It’s something that sounds good but when we actually start looking at projects that make sense for private investors leveraged up with state-backed or federally-backed bonds to do a project, we’re going to find that it winnows down the list dramatically.

Though there are still ways to make money if you’re good at crony capitalism and gaming the metrics.


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