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KAI RYSSDAL: Here’s a news flash. Subprimes are out. Sewers are in. Actually, roads and bridges too. Morgan Stanley announced today it’s collected $4 billion for a new infrastructure fund. Credit Suisse and General Electric did them one better. It raised more than $5 billion. Our New York Bureau Chief Jill Barshay explains where they’re going to put all that money.
JILL BARSHAY: It’s not just Morgan Stanley and Credit Suisse. Goldman Sachs and the Carlyle Group are getting into the infrastructure game as well.
David Narefsky is an attorney at Mayer Brown who works on private infrastructure deals. He says bridges and sewer systems may not look so sexy, but investors like them because they’re safe.
David Narefsky: When you look at the current state of the market, with all the concerns about credit quality, in many ways I think infrastructure really represents a flight to quality because it stable, it is long-term, it isn’t going anywhere, these are fixed assets.
Narefsky says these new funds are taking over toll roads and energy plants through long-term leases. The governments get a pile of cash up front. In exchange, the funds operate the infrastructure and collect the tolls or user fees themselves.
Dennis Enright of the NW Financial Group analyses privatization deals. He says infrastructure projects can generate returns of 12 to 15 percent. That’s why investors earmarked $100 billion for the sector over the past year.
Dennis Enright: Most of that money will get targeted not to U.S. infrastructure, but to infrastructure around the world where private development of infrastructure is more common.
But U.S. cities and states are warming up to private ownership. Pennsylvania is currently taking bids from private companies to lease its 500-mile turnpike. The Chicago Midway airport is expected to go on the block next.
In New York, I’m Jill Barshay for Marketplace.
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