Weekend Reading

Ashby Monk

Richard G. Little of the University of Southern California’s School of Policy Planning and Development has an interesting new paper out entitled, “Towards a New Federal Role in Infrastructure Investment: Using U.S. Sovereign Wealth to Rebuild America.”

The paper’s premise is that the US has to address years of chronic under-investment in infrastructure. In order to do this, Little want’s to tap into the public pension and social security savings in order to match long-term investment capital with long-term investments in infrastructure (which the US desperately needs). As he says:

“The core idea of the proposal is to utilize a combination of public and institutional pension funds, individual retirement accounts, and other private investment capital, together with Social Security Trust Funds to capitalize a National Infrastructure Bank (NIB) that would provide senior debt to fund projects and programs supported by user fees or other reliable and sustainable revenue streams.”

So long as this new entity remains commercially oriented, it’s a reasonable idea; public pension funds have indeed been moving into infrastructure at an increasing rate, driven in large part by the desire to find assets that better match their long-term liabilities. So, Little has a tenable position, but it’s hard to imagine US policymakers agreeing to use the Trust Fund in this way…even if I tend to think the SSTF should be restructured to allow for some more aggressive investments.

Get the paper here.

4 Responses to “Weekend Reading”

  1. 1 rien huizer February 14, 2010 at 10:53 am

    US pensions are generally underfunded. Plans must rely on optimistic expectations on returns from assets with risky cashflows to avoid showing the need to increase contributions or reduce benefits. Steady, predictable cashflows do not fit in this fantasyland. Even a higher excise on gasoline would be easier to do.

  2. 2 Rene Sugar February 15, 2010 at 2:33 pm

    If the infrastructure projects were restricted to power generation, I believe the idea would work.

    On a large enough scale, it would create a lot of jobs and energy independence.

    The economic stimulus would change from an expense to an investment.

    The taxes on the revenue of the completed power plants would be an ongoing stream of revenue for the government.

    • 3 Ashby Monk February 15, 2010 at 5:11 pm

      I think there are a couple of issues that would need to be addressed to make this work. First, can an arrangement be set up that ensures fiduciary duty is maintained; i.e. that the investments maximize financial returns, which is the exclusive focus of pension trustees. Second, if we add Social Security in the mix, can we set up an institution that eliminates that possibility of political interference. I think both are feasible, which is why I’m interested in the idea…it’s a classic “double bottom line” investment.

  1. 1 “Using sovereign wealth to rebuild America” | Money Supply | FT.com Trackback on February 12, 2010 at 7:48 pm

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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