Blackstone Group is planning to contribute $100 billion towards infrastructure investments in the U.S. As part of its strategy, the largest private equity manager in the world will get a contribution of $20 billion from the Public Investment Fund of Saudi Arabia. Blackstone will also raise a similar figure from other investors and the rest will be borrowed giving the asset manager over $100 billion in financial ammunition required to invest in infrastructure projects. The agreement between Public Investment Fund and Blackstone is non-binding and terms continue to be negotiated.
Steve Schwarzman, the chief executive officer of Blackstone, is a close confidant of Trump and chairs a forum of business executives who regularly meet with the president to talk economic growth and job creation.
The deal was struck as top executives of U.S. corporations visited Riyadh, Saudi Arabia for a Saudi-U.S. CEO forum. So far the meetings have resulted in deals worth billions of dollars being agreed upon. One of the notable deals was between General Electric and Aramco, the Saudi oil giant. This took place alongside the visit of U.S. President Donald Trump to Saudi Arabia.
Investing in infrastructure has received renewed interest following Trump’s campaign pledge to revamp U.S. airports, bridges, roads and highways.
“There is broad agreement that the United States urgently needs to invest in its rapidly aging infrastructure. This will create well-paying American jobs and will lay the foundation for stronger long-term economic growth,” said the president of Blackstone, Tony James, in a statement.
The plans by Blackstone to invest in infrastructure were disclosed earlier in the year. Infrastructure investing does not, however, always work out well for private investors. This is because permitting processes and lengthy planning can lead to limits on projects. Also, there is no guarantee of attractive returns being generated.
Josh Harris, the co-founder of Apollo Global Management earlier in the month said that the returns from public-private partnerships are sometimes too low to justify. According to Harris, this is because infrastructure requires heavy investments but it is not accompanied by revenues. This requires careful selection of projects that can be undertaken. For instance airports are a preferred investment as their commercial prospects are well understood.
This will not be the first investment by Blackstone in infrastructure as the private equity firm has put in more than $40 billion in infrastructure-tied projects in the last one and a half decades.