Marc Lipschultz, KKR: We have for years been sort of after this opportunity to help deliver private capital into the public sector to meet the significant infrastructure needs this country has, and they are obvious, apparent and it’s also clear that at the government level, we’re really constrained on resources, federal level, state level, municipal level. So if we can all kind of crack the code on how public-private partnerships can be built so that we can actually deliver capital into the public sector and we can actually then take over the investment requirements that are needed to keep up the assets we’ve got or develop further the assets that together then own and manage, I think that’s pretty exciting for public policy, and an exciting investment opportunity.

So Bayonne is to us a real fine example of a win-win partnership. Bayonne had the foresight to say, “You know what? We’ve got this water system. It needs capital for upgrading. We need to think about how to optimize its operations. Let’s partner,” and in this case, we were able to form this partnership under a 40-year concession agreement, so it creates long visibility, durability, and stability from our point of view, and from their point of view, brings in a partner who can deliver that capital, and we have a operating partner in that case too in United Water. So, with all of that kind of triumvirate together, we can actually deliver a better service of a product to the citizens of Bayonne, and create an investment that’s really compelling for the pension funds and insurance companies and others who invest with us.

The Bayonne investment, or the Bayonne partnership really is, exciting because I think it represents the front edge of what I hope will be and really should be kind of a wave of activity here in North America and the U.S. as we think about how do meet these critical infrastructure investment needs at a time when government funding is pretty constrained. So, by bringing in private capital and operating capabilities, partners United Water, together with Bayonne, the three together were able to deliver I think a real win-win, which is something that is a better service, a better product for the citizens of Bayonne, and an attractive investment for the pension funds, insurance companies and the people that work with us, and I think that when we look at ways we can marry the sort of long term investment needs of many institutions in a world where treasury rates are, 10-year treasuries are below 2%, there’s an interesting opportunity I think, again, both for the public sector to get this capital and operating capability that would help enhance what is being delivered to the citizenry, and for us to be the provider of that capital under very long term arrangements.

Privcap: Not a lot of PPP deals get done despite the enthusiasm there has been in both the public and the private sector to get the done. What were the ingredients for success that allowed this particular transaction to take place?

Lipschultz: So I think a couple of critical ingredients - first, as always, strong leadership. You have terrific public officials in Bayonne who had the foresight, the vision and the commitment to say, “You know what? This is really the right answer for our city.” And so, like anything, strong leadership counts for a lot. I think also, and again a critical ingredient has to be a win-win, right? It has to be about meeting a need, in this case that Bayonne has, to upgrade and continue to invest in and operate, of course, at world-class levels, the water system, and has to, of course, work for the investors. It has to be structured in a way where the risk-return merits are capital. So, those couple ingredients I think really are probably seminal to getting these things done. At the same time, as we all know there have been a lot more PPPs talked about and tried than completed, and the politics have been challenging.

People have a natural, and I understand, a healthy skepticism about, “Gee, what’s going to happen to my public service, this thing I’m used to relying on, with the involvement of private capital. The real answer is, in the right hands, it’s going to only get better, and it’s going to help actually meet the fiscal needs of a given municipality or a state, or frankly, the federal government, which is going to mean less burden on the taxpayers, right? It’s going to mean less burden on the citizenry over time, done right. But I understand, what it gets down to is probably there need to be more proof points, right?

So we need to demonstrate that these can be done in win-win fashion, and operated in win-win fashion, and hopefully that will prove to be the foundation for many more of them occurring. The reality is, there’s plenty of data around the world, right? If we look, frankly, to Australia, if we look to Europe. Set aside anything else one might observe about those economies and those markets. The fact is that public-private partnerships have been an enormously successful way to develop and operate infrastructure. So hopefully we’re going to see more of this. I’m sure it will always be slower than we would all like, probably slower than it should be, but at least we’re seeing the front edge, and I think the burden is on people like us to show that these in fact are winners for the stakeholders that surround the businesses.