How Private Equity Could Rev Up the U.S. Economy

(page 5 of 5)

Browse Issues

Browse the BusinessWeek Archive

Related Items

• Masters of This Universe
• Podcast: Behind the Story

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• suggest a story
• digg this
• save to del.icio.us

Few investments look as appealing as those blessed by government dollars. As part of the $787 billion federal stimulus package signed into law in February, the government has earmarked $29 billion to patch crumbling roads, bridges, and schools. Thanks to Uncle Sam, the infrastructure investing trend is picking up. The states' cash crisis is also sparking interest. "With states facing real economic trouble, you will see further pressure on them to hand over infrastructure to private firms," says Ben Heap, co-head of infrastructure in UBS's (UBS) private equity group. There were 127 infrastructure funds in 2008, up from 91 in 2006, according to research firm Probitas Partners.

When Sadek Wahba, investment chief at Morgan Stanley's (MS) $4 billion infrastructure fund, goes shopping for deals, he follows two main principles. First, invest only in public necessities. Second, make sure the concerns of local citizens are heard—to minimize political problems later. In December, Morgan Stanley and a group of investors paid $1.15 billion for 36,000 parking meters in Chicago. Wahba is converting the old coin-operated devices to electronic pay machines. "These assets are a good hedge against inflation, because you are providing a basic service," says 43-year-old Wahba.

But the best example of private equity's shrewdness in the downturn may be its ability to spiff up its sullied image. In Pittsburgh, Robert B. Fay and his brother Pat feared selling their 62-year-old construction business, Joseph B. Fay Co., to private equity, worried that a buyer would dismember the company and lay off staff. The family's lawyer called New York's FdG Associates after reading that the $300 million buyout firm had experience working with family-run businesses. In all, the Fay brothers met with six private equity firms. FdG's team wore casual khakis to its meeting to underscore its anti-Wall Street image, while rivals sent representatives in designer suits. The Fays identified with the FdG team instantly and agreed to sell to the firm in February. Says Bob Fay: "These guys came to us as partners, not vultures."

with Tara Kalwarski in New York and David Welch in Detroit

Carbonara is a senior writer for BusinessWeek. Silver-Greenberg is a reporter for BusinessWeek.com.

Business Exchange

Track and share business topics across the Web.