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The Coming Privatization Boom



November 06, 2009 – Comments (2) | RELATED TICKERS: BAM

There was at least one fascinating observation from Brookfield Asset Management's Bruce Flatt in his Q3 letter to shareholders:

Moving forward, we believe that private infrastructure funding (new build and sales of in-place assets) is set to boom for at least the next decade, and likely longer. Our vision is based on the premise that governments across the world, but in particular in developed markets, have overspent in relation to their resources and now need to right size their debt positions by selling assets, in order to work their way out of significant budgetary deficits. These efforts will surely involve tax increases, but we believe the global infrastructure market is being set up for enormous growth as state and federal governments across the U.S., UK, Europe and other indebted nations, liquidate capital assets to generate proceeds for the purpose of paying down liabilities.

The UK government has long been a leader with respect to infrastructure privatization. The UK government’s recent announcement of its intention to raise £16 billion through infrastructure privatizations, including the Channel Tunnel and the Dartford Crossing, is just the beginning of this next phase.

Knowing governments, there may not even be as many tax increases as Flatt hypothesizes, which would necessitate more asset sales. I know here in Virginia our governor elect campaigned on plans to privatize the liquor stores (a move I very much support).

Anyway, a trend to watch, and one that will benefit big pools of capital.

2 Comments – Post Your Own

#1) On November 06, 2009 at 2:00 PM, chk999 (99.97) wrote:

And, the privatizations have often been a goldmine for those able to get in early, since the assets are often sold at prices below the intrinsic value.

I wonder if any publically traded capital pool will be bidding on the assets?

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#2) On November 08, 2009 at 12:06 PM, sid1138 (44.34) wrote:

The other option governments are considering (especially the US government) is nationalization of the country's industries.  Consider the attempt to nationalize healthcare, and the already major acquisition of banking and automotive companies.

Huge debt does not matter if you own the companies that are lending you the money.  Consider the fact that most of the banks that received stimulous money have used that money to invest in government bonds.  Nice work if you can get it.

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