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Financing Civil Infrastructures: Is There a Role for Private Capital Markets?Financing Civil Infrastructures: Is There a Role for Private Capital Markets?

July 20, 2005

by Richard G. Little


Abstract

On July 20, 2005, the Keston Institute for Public Finance and Infrastructure Policy convened a colloquium, "Financing Civil Infrastructures: Is There a Role for Private Capital Markets?" to discuss whether and how private capital markets could address the investment deficit caused by the inability of the public sector to establish reliable funding streams for these systems. It was concluded that:

1. There is definitely a role for private capital in the delivery of infrastructure services although the specific nature of private involvement will be best determined on a case-by-case basis.

2. The potential availability of private capital is not clear. For example, a typical REIT has about $3 billion in assets and a typical mutual fund about $1 billion. When compared to investment shortfalls in the range of $10’s of billions, a REIT-like vehicle may not be able to attract sufficient capital to address the full need. However, private investment banks seem eager to become involved with existing infrastructure projects with an established user base and revenue stream.

3. Public-private partnerships offer many potential advantages for helping to overcome investment deficits. However, the appropriate knowledge base and skill sets for the public sector to negotiate these agreements should be determined and legislative or regulatory barriers to their implementation should be removed.