Not Your Average Spring Break

Published on March 21, 2009

Chicago Booth students visited London, Mumbai, Abu Dhabi, and Dubai over spring break to see firsthand how private investments in infrastructure — the roads, bridges, and utility systems that underlie economies — could be profitable.

“It’s one thing to read about the issues India faces as it strives to continue along its path of economic development and enable its people to achieve higher standards of living, and quite another to see these issues in person,” said Andrew Walcher, second-year student in the Full-Time MBA Program. “When I drove from the northern part of Mumbai to the southern part of the city, the one thought I couldn’t get out of my mind was, ‘Where to begin?’”

Walcher called the need in Mumbai “almost overwhelming. And it tears at you because the changes that need to occur in order for many of these people to live a better life will take a long time, and they won’t come about by simply throwing money at the problems. It makes you feel powerless because these problems are so much bigger than you. But on the other hand, these are the type of challenges that, if you can overcome them, make living worthwhile.”

From March 21 to March 30, a dozen students met with investors and advisors in England, India, and the United Arab Emirates. They gained “not only geographic perspective,” said second-year student Aman Randhawa, “but also perspective from different stakeholders and participants.”

Among the organizations they visited were private equity firms like Goldman Sachs Infrastructure Partners in London; Calyon, a project finance and banking interest in Mumbai; the Abu Dhabi Investment Authority; the International Finance Corporation, which is a member of the World Bank; and numerous other entities and officials.

Randhawa, one of the trip leaders, said the best part was gaining perspective of infrastructure investors in three different regions, each “unique in their challenges and opportunities.” He found it eye-opening, for example, that “a lot of Western investors are significantly more comfortable about investing their capital in India versus investing in China,” contrary to what may have seemed apparent at first glance.

“While there is significant need for infrastructure development in China,” said first-year student Robert Green, “investors are highly cautious about the political risks.”

Investors in India also could be skeptical. Green said he found it surprising that an investor of Indian descent in India “was highly cynical about the capability and integrity of local professionals. This attitude contrasted sharply with what we viewed as a highly educated and committed workforce.”

Second-year student Gilbert Ong speculated that investors’ greater comfort investing in India than China stemmed solely from their familiarity with the United Kingdom legal system that India inherited. He said investors who are comfortable with non-common-law legal systems, such as the French, Japanese, and German, “will be comfortable with the codified legal system in China.”

Ong said at times he was taken aback to find a “lack of understanding” of such issues as exits and government changes in public-private partnership projects.

One set of projects of particular fascination to Walcher was the development of Masdar City, which aims to become the world’s first zero-waste, zero-carbon city. Walcher spoke to an engineering team there. “I have experience working in clean tech and it was interesting to see how they planned to incorporate many alternative energy technologies into a sustainable, carbon-neutral city,” he said.

Trip leader and first-year student Marek Wolek cited “three key takeaways” from the trek:

  • It is “absolutely critical” to understand the political process, legal environment, needs of partners, and public value in nearly every public-related infrastructure investment. “Just having a financial approach will not enable you to make deals,” he said.
  • Bringing private capital into infrastructure carries advantages for municipal budgets and public value.
  • Many investment opportunities arise from taking over and managing infrastructure assets of private companies — for example, from distressed sellers or because of corporate deleveraging.

                                                                                                                — Mary Sue Penn

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