WASHINGTON (MarketWatch) — The U.S. should make it easier and offer incentives for cash-rich sovereign wealth funds to invest in American infrastructure, a leading think tank urged Friday.
The Brookings Institution, in releasing a study on the issue, said U.S. policy makers should generally become more open to foreign investments and specifically may want to offer tax breaks and loan guarantees to get funds like the China Investment Corp. and the Government of Singapore Investment Corp. with some $4 trillion in assets investing in U.S. infrastructure.
The study — co-authored in part by representatives of firms that would likely be intermediaries for such investments, including Goldman Sachs /quotes/comstock/13*!gs/quotes/nls/gs (GS 160.68, +0.41, +0.26%) , Blackstone Group /quotes/comstock/13*!bx/quotes/nls/bx (BX 17.30, +0.06, +0.35%) and Silver Lake Partners — say the sovereign wealth funds could fill a gap by investing in infrastructure that the U.S. is having difficulty financing on its own. A White House proposal last year to create an infrastructure bank has been pretty much ignored by Congress, and municipalities are having to pay greater interest rates when issuing debt.
“There’s a desperate need for alternative capital,” said Vijaya Ramachandran, senior fellow at the Center for Global Development and one of the co-authors. And sovereign wealth funds are an obvious target for infrastructure funds because they seek long-term, low-risk investment.
The U.S. has resisted such investments in the past, notably DP World’s /quotes/comstock/11i!dpwrf (DPWRF 0.00, 0.00, 0.00%) attempt to buy American ports, on security grounds.
To build up trust, the group said a formal dialogue should be set up between representatives of these funds and those from the U.S. government, notably the White House and Congress. So far, an International Monetary Fund effort to promote transparency has seen only limited adherence to voluntary disclosure. And the group said infrastructure investment could be done by a broad set of sovereign wealth funds to limit the ownership by any one country.
The sovereign wealth funds are apprehensive about the U.S. regulatory environment, the study's authors note.
Richard Kimball, managing director of Goldman Sachs, pointed out that CIC chose Toronto over any U.S. or European city for their first foreign office, in part because of Canada’s oil and mining operations but also because of that country’s greater acceptance of foreign capital. Australia, Canada and the U.K. all have greater foreign investment in their infrastructure.
To be sure, there already is sovereign wealth fund investment in U.S. infrastructure, both directly and indirectly via funds, and CIC Chairman Lou Jiwei and President Barack Obama discussed the possibility during the recent Chinese state visit to Washington, D.C.
Martin Baily, a senior fellow at Brookings who didn’t participate in the study, said at a panel discussion that he opposed the idea of federal guarantees to the foreign funds. “We’re maxed out on credit,” he said. He also said he was skeptical about the scale of infrastructure investment needed.
“We need some, clearly,” Baily said. But claims about the productivity boost from infrastructure investment tend to be “extravagant.”
Source: Market watch
www.marketwatch.com
The Brookings Institution, in releasing a study on the issue, said U.S. policy makers should generally become more open to foreign investments and specifically may want to offer tax breaks and loan guarantees to get funds like the China Investment Corp. and the Government of Singapore Investment Corp. with some $4 trillion in assets investing in U.S. infrastructure.
The study — co-authored in part by representatives of firms that would likely be intermediaries for such investments, including Goldman Sachs /quotes/comstock/13*!gs/quotes/nls/gs (GS 160.68, +0.41, +0.26%) , Blackstone Group /quotes/comstock/13*!bx/quotes/nls/bx (BX 17.30, +0.06, +0.35%) and Silver Lake Partners — say the sovereign wealth funds could fill a gap by investing in infrastructure that the U.S. is having difficulty financing on its own. A White House proposal last year to create an infrastructure bank has been pretty much ignored by Congress, and municipalities are having to pay greater interest rates when issuing debt.
“There’s a desperate need for alternative capital,” said Vijaya Ramachandran, senior fellow at the Center for Global Development and one of the co-authors. And sovereign wealth funds are an obvious target for infrastructure funds because they seek long-term, low-risk investment.
The U.S. has resisted such investments in the past, notably DP World’s /quotes/comstock/11i!dpwrf (DPWRF 0.00, 0.00, 0.00%) attempt to buy American ports, on security grounds.
To build up trust, the group said a formal dialogue should be set up between representatives of these funds and those from the U.S. government, notably the White House and Congress. So far, an International Monetary Fund effort to promote transparency has seen only limited adherence to voluntary disclosure. And the group said infrastructure investment could be done by a broad set of sovereign wealth funds to limit the ownership by any one country.
The sovereign wealth funds are apprehensive about the U.S. regulatory environment, the study's authors note.
Richard Kimball, managing director of Goldman Sachs, pointed out that CIC chose Toronto over any U.S. or European city for their first foreign office, in part because of Canada’s oil and mining operations but also because of that country’s greater acceptance of foreign capital. Australia, Canada and the U.K. all have greater foreign investment in their infrastructure.
To be sure, there already is sovereign wealth fund investment in U.S. infrastructure, both directly and indirectly via funds, and CIC Chairman Lou Jiwei and President Barack Obama discussed the possibility during the recent Chinese state visit to Washington, D.C.
Martin Baily, a senior fellow at Brookings who didn’t participate in the study, said at a panel discussion that he opposed the idea of federal guarantees to the foreign funds. “We’re maxed out on credit,” he said. He also said he was skeptical about the scale of infrastructure investment needed.
“We need some, clearly,” Baily said. But claims about the productivity boost from infrastructure investment tend to be “extravagant.”
Source: Market watch
www.marketwatch.com
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