Following U.S. President Donald Trump’s visit to Saudi Arabia, the Middle Eastern country’s biggest sovereign fund, the Public Investment Fund (PIF), announced it would invest $20 billion in a new investment vehicle dedicated to infrastructure projects in the United States.
PIF said it had signed a memorandum of understanding (MoU) to provide the money as an anchor for the vehicle created by Blackstone, the giant U.S. investment firm.
The announcement was the result of more than a year of talks between PIF and Blackstone, which aims to raise another $20 billion for the vehicle from other investors.
Not only did it coincide with Trump’s visit to Riyadh, but it also leant support to his administration’s plans to oversee the investment of $1 trillion in U.S. infrastructure in the coming years.
Although details of Trump’s proposal have yet to be published, Transport Secretary Elaine Chao has said $200 billion of direct federal funds would act as a leverage to raise the remaining $800 billion, especially from private investors.
«There is broad agreement that the United States urgently needs to invest in its rapidly aging infrastructure», Blackstone President Hamilton James said in the May 20 statement that announced the MoU with PIF. «This will create well-paying American jobs and will lay the foundation for stronger long-term economic growth».
The statement said Blackstone expected to invest in more than $100 billion worth of projects with the equity raised for the vehicle as well as debt financing.The MoU was the result of more than a year of talks, which were led by Stephen Schwarzman, the Ceo of Blackstone, according to The New York Times.
Trump’s campaign proposal to renew the country’s ageing infrastructure and his vow to follow through with it after winning office in November 2016 helped accelerate the talks.
PIF’s eventual pledge was the first to be made by an institutional investor, a vote of confidence in the plan to build, repair or replace roads, highways, railways and other types of infrastructure throughout the country.
«This potential investment reflects our positive views around the ambitious infrastructure initiatives being undertaken in the United States», H.E. Yasir Al Rumayyan was quoted as saying in the May 20 statement.
Another show of support from the private sector comes from Schwarzman’s participation in the Strategic and Policy Forum, a committee of experts set up to advise Trump.
The American Society of Civil Engineers (ASCE) has for years decried the deteriorating state of infrastructure in the United States. In its latest report, it said the United States (as reported by We Build Value in its March 30 issue) had spent too little too late on the upkeep of its infrastructure, adding that it had to spend $2 trillion to close a 10-year investment gap. Failure to do could lead to $3.9 trillion worth of losses to the gross domestic product by 2025, it warned.
Blackstone is not the only one to have noticed the potential returns that infrastructure can offer as an investment. Others like Brookfield Asset Management and BlackRock are looking at increasing their exposure to the sector.