Firm: Goldman Sachs Group
Fund: GS Infrastructure Partners I LP
Target: $3 billion
Amount raised: $6.5 billion
Minimum investment: $5 million
Goldman Sachs Group, which has long advised governments on the privatization of their roads and bridges, is now ready to take them off their hands.
Goldman Sachs put $750 million of its own capital into the fund, and drew on minimum-$5 million commitments from pensions, banks and insurance companies for the remainder. A spokesperson for the New York-based investment house did not return a call seeking to learn the identity of the fund’s limited partners.
The firm plans to invest in bridges, ports and highways, as well as gas, water and electrical utilities. In a statement announcing the closure, Goldman Sachs said it intends to deploy the capital mainly in North America and Europe. It will probably find stiff competition abroad, especially since Bahrain’s
Infrastructure has become a popular play among LBO firms, and for good reason. The American Society of Civil Engineers recently estimated that $1.6 trillion should be invested to repair and maintain the nation’s aging infrastructure, and states are considering hiring private companies to construct and manage more than $34 billion in toll roads, according to the Federal Highway Administration.
Increasingly, cash-strapped state and local governments, following the example of foreign governments, have turned to private consortiums to take over public assets. Often they sign long-term leases and concession agreements that off-load financial and maintenance responsibilities.
By collecting tolls or charging usage fees, private operators can obtain significant rewards. For instance, Australia-based
Private equity is paying attention.
As recently as six months ago, Goldman Sachs placed the target for its infrastructure fund at $3 billion. That it raised more than twice that amount indicates how enthusiastic investors have become.
“These funds are driven by the significant demand for the infrastructure asset class from a long list of toll road companies, pension funds, insurance companies, construction-engineering firms, private equity funds, as well as potential public entities,” Mark Florian, the chief operating officer of Goldman’s Municipal Finance and Infrastructure Group, told a congressional transportation subcommittee last year during a hearing on the future of transportation financing. “These investors seek steady long-term returns.”
Already, Goldman Sachs has begun putting the fund to work. In June, it led a consortium including the government of
Even before this recent activity, Goldman Sachs was no stranger to infrastructure investing, serving as the financial advisor in two landmark deals: the state of Indiana’s $3.8 billion, 75-year lease of the 157-mile Indiana Toll Road earlier this year and Chicago’s 99-year, $1.83 billion lease of the Skyway bridge in 2005. A joint venture of Spanish construction giant Cintra and Macquarie won the bidding for both leases.
In a show of Goldman’s muscle as a buyer, it used its infrastructure fund to outbid Macquarie for ownership of Associated British Ports.—J.H.