Infrastructure has gone from the boring
building of roads, bridges and water systems to be all the rage, not just the
United States, but all around the world. Bob Steele Perella.
Weinberg helped put together one of the biggest deals in recent years
BlackRock's purchase of global international partners for 12 and a half
billion dollars. But when we sat with Bob, we started
with the larger context. I try to think about this with a bit of
an on ramp into the conversation. You know, for thousands of years we had
an agrarian economy. For little more than 100 years, we
transitioned to an industrial economy, and now we're in the stage of moving to
a knowledge and global economy. And each one of those economies required
a different set of foundational infrastructure in order to allow the
economy to succeed. And so there are lots of transitions
going here, and there'll be lots of spending required to organize that
transition. You're right, there's an energy
transition underway, but there's also a transition with regard to how we move
goods and services in a global economy, ports, airports, things like that.
And so and the digital infrastructure required to.
And, you know, we all grew up where we built a highway system in America to
move cars. Now we need the digital infrastructure
to move data, which is the equivalent of, in my mind, of the highway of
knowledge for the future. So all of these things are coming
together. Yes, energy transition is a large part
of it, but I think it's much more than that.
Well, given the size of it, it's too big for either the private sector to do it
by itself or for that matter, for government to do it by itself.
What is the relation to the private and the public as we move into this
transformation you describe in infrastructure?
Well, let's let's think about it together.
First of all, it's up to government and our elected officials to organize the
projects and the rules and regulations for how the economy should be set.
And that's their job, is to lay out what's the destination or the blueprint.
And I think that. But when you get to implementing that, I
believe there's a special role for the private sector that I believe can do in
many cases, a better job of organizing, executing, planning and delivering on
the ambition that government has outlined, that the government's going to
write the rules on energy transition. What are the requirements for cars?
What are this and that? But it's up to business to respond and
work with government in order to lay down the tracks to accomplish this and
take us to the destination that our elected officials have organized in
response to what we all think and needs in the US.
The government has laid down a lot of infrastructure track in the last three
years through the Inflation Reduction Act, the bipartisan Infrastructure bill
and the Chips and Science Act. I think that the three examples you gave
of legislation and direction from the federal government are all in the right
way, and they're serving as a stimulant to basically encourage this type of
investment. We know that the CHIPS Act, while
controversial, is going to bring new focus to the semiconductor industry in
the United States and the group. On behalf of Secretary Raimondo that's
organizing that are working hard to make sure the money is allocated in the right
way to the right places, so that when we come back in 3 to 5 years, we've really
made progress. And think about that for a second.
It was a government organized project. The government brought in outside
advisors to help them allocate the capital.
The capital will go to companies who now we're going to be managing that way.
That seems to me like a good combination of interest and skills where hopefully
we'll make progress on this, but it's going to take a long time.
Whatever the efforts of the US government, it's not alone in pushing
hard on infrastructure, particularly when it comes to chips and particularly
when it comes to China. You know, it's easy to imagine a fantasy
world in which no one subsidizing, but that's just not the world that we live
in. And in fact, China started its
semiconductor subsidies first in 2014. She called AI conductors at core
technology, and China started setting up its first government backed investment
funds to pour money into the chip industry.
And so whether you're the US or Japan or Europe, you've got to act with that as a
fact. That's just a given and you've got to
devise your policy around that. And I think one of the reason why the US
Congress passed the CHIPS Act is because they realized that there were U.S.
firms, US based firms that were getting more money in subsidies from foreign
governments than from the US government. And so given those circumstances, it
wasn't a surprise that US companies were moving manufacturing overseas.
And so given the scale of Chinese subsidies, I think a lot of governments
are saying we want a like industrial policy, we be skeptical of it.
But what is the alternative? Given the size of the need and the
opportunity, the government alone can't drive the transformation in
infrastructure that's needed, including large non-profit foundations like the
Rockefeller Foundation. Every big company out there should be a
big part of this transition. If you run a food company.
You should join a coalition. We're helping to establish that once 50%
of your supply chains to be from regenerative agriculture, agriculture
that actually sequesters carbon and avoids releasing unnecessary carbon into
the atmosphere. And those types of transitions are going
to be fundamentally commercial transitions.
One way to let the marketplace direct all this capital to the most effective
uses is through a voluntary carbon market.
So I think these are very practical issues now.
Combine that with governments and NGOs who are trying to come up with realistic
solutions and they need concessionary capital, they need first class money.
This is where I think that the voluntary carbon markets can help because
companies that are making every effort to get to either carbon neutrality or
net zero nonetheless can't get there because the infrastructure isn't in
place or technology isn't in place when it comes to global investment in
infrastructure. It's not just a need.
Major players see it as a ripe opportunity.
As we saw in the recent acquisition of Global Infrastructure Partners by
BlackRock. This is going to be the golden age of
infrastructure investing both in terms of the need for capital as well as
investors who want that capital. Okay.
And so the question we asked ourselves was, how can we accelerate the pace at
which we're getting things done? Investing in new assets as well as
getting pension funds as well, funds, asset managers to give us additional
capital. And so if you look at the the the
marriage between ourselves and BlackRock, Rob CAVUTO said it was one
plus one equals four. I'm not sure whether it was four or five
or three, but he's certainly right that one plus one is more than two.
As Larry said, perfect mirror images of each other.
They have a great infrastructure business, but very complementary with
us. We do large cap transactions, they do
mid-cap transactions. They have a terrific infrastructure debt
business. It's primarily investment grade ozone is
primarily below investment grade. We have an infrastructure solutions
business which which we don't have. So you put these two businesses
together, we can go to governments, we can go to companies large, small, medium
sized and offer them an integrated solution.
The conversation you had with Larry and by you highlighted this idea.
Our firm was the advisor, one of the advisors on that transaction.
And I think what you're seeing and what Larry and Bio talked about was that
there's a global demand for capital, private capital to go with government
capital in order to organize these large and important products.
And now, David, the scale of these projects is so large, and they're just a
small handful of firms that can provide the capital of which the combined
BlackRock GAAP combination will be one of the leaders.
But there's different types of capital. The way I think about it is the
government can provide some of the foundational capital to size the risk so
that it's appropriate for private capital to come in.
Some of these projects are so big and they're subject to change by the
population and by by legislators and regulators.
That's not the right risk for private people to underwrite.
That should be underwritten by government.
And then private capital should come in to work with the projects once they're
defined. And that's what the infrastructure
investors have been able to accomplish. And so providing the private capital and
I think also private capital speaks to the issue you were just talking about is
where do you get the discipline to manage the projects well, to make the
hard decisions and allocate capital in the right way.
I think that when private capital is part of the equation that brings that
skill to the table and ensures that the project turns out in a better, more
efficient, more focused fashion than if it were just a government project.
And that gives expertise in putting together and running big projects was an
important part of what BlackRock saw when it made its 12 and a half billion
dollar investment. They invest in major and larger projects
than we did in infrastructure like Gatwick Airport and Sydney Airport, but
they're particularly superb
in the operational efficiencies of these investments.
They improve the quality of service. And so if you think about what we have
brought at BlackRock over the last eight years in infrastructure, what GIP has
been doing since 2006, the two organisations look like a perfect match
and then you've overlay the cultural connection and we always underestimate
the cultural connection though. Guy PE now combined with BlackRock, is
one of the biggest global infrastructure players.
It is far from the only one. It's not just VIP, it's not just
BlackRock. If you look at Prologis, if you look at
really any large company investing in infrastructure or logistics, looking at
two areas, one is clean energy and energy transition in order to reduce
costs and increase reliability and reduce risks and also air obviously.
And those are getting more and more intertwined.
And interrelationship between AI and clean energy, I think will be an
interesting area to watch when we're talking the trillions of dollars that
will be needed for infrastructure investment around the world.
You simply can't get there without major roles for the private sector and for the
markets. I trust the marketplace and business on
behalf of the marketplace with their ambitions to organize how to pursue the
path. And so that'll be the idea.
We know that we have an issue with greenhouse gases and we know we have an
issue with the carbon aspect of the economy.
Now, as I said, when I started, there were 100 years of the industrialization
of America and the driving energy form came from hydrocarbons, and that was
successful. It lowered the price of energy.
And we know low energy prices and energy availability are very progressive,
positive aspects for growing the economy.
And we became connected to that form of energy and it accomplished a lot of
great things. Now we're at a point we recognize that's
not the right path for the future. So we're going to pivot.
We know the large generators of greenhouse gases.
We know which transportation, we know it's heating, we know it's industrial,
We know all the different things that are and we're going to have to make
adjustments to each one of those things by public policy.
And then I think the marketplace can respond by helping to organize it in the
right way.
