Hedge Fund, Meet Highway

New investments in infrastructure by private asset managers are changing the way the world finances its cities, power systems, and transportation links.

- Julien Courbe & Peter Raymond

The deal was inked in 2007, and at the time it garnered little attention. The New York–based private equity firm Blackstone Group Holdings had cobbled together a group of financiers to put up US$120 million for a two-thirds stake in a dam on the White Nile in Uganda.

Any way you looked at it, the move was risky. The hydroelectric project had kicked off more than a decade earlier and had languished ever since. Progress had been hindered by construction delays, cost overruns, corruption, and even pirate attacks. Nonetheless, Blackstone decided to take a chance. It hammered out a deal that would provide the firm with a cash annuity from energy fees in a country badly in need of electric power. When Blackstone signed the agreement, only 10 percent of Uganda’s population had electricity.

The investment made a difference — especially because of the expertise and oversight that Blackstone added. In 2013, the 100-foot dam was completed, and it now supplies half of the Ugandan population with electricity. Blackstone may sell the asset in a few years, in keeping with its usual short-term approach to buying businesses. Or it may hold on to it and enjoy the reliable and plentiful cash flow, which is hard to come by in the global low-interest-rate environment. Either way, Blackstone’s success with the Ugandan dam represents an investment trend that is changing the way infrastructure projects are planned and funded.