Biden's infrastructure bill should be much more than $1.7 trillion: I Squared Capital Founder

Founder, Chairman, and Managing Partner of I Squared Capital, Sadek Wahba, joins Yahoo Finance to discuss what the possible next steps for the Biden Administration might be after talks about an infrastructure bill with the GOP fell apart due to conflicts about price and taxes.

Video Transcript

MYLES UDLAND: Reports yesterday that Republicans and the White House reaching an impasse on talks around an infrastructure package, but certainly a lot of optimism does remain in both the public and the private sector for an increase in investment in infrastructure here in the US. And joining us now to talk about how the private sector is taking these developments in areas that they'd like to see invested in Sadek Wahba, Founder, Chairman, and Managing Partner at I Squared Capital.

Sadek, thanks so much for joining the program this morning. Let's just start with from your vantage point, whether that news yesterday puts an end to hopes around infrastructure, and sort of how you guys are thinking about today, the likelihood of something getting through the US-- the US Congress over the next, let's say, couple of months.

SADEK WAHBA: Myles, great to be with you. Like you said, I think it's good news in the sense that they're both talking to each other. President Biden is at $1.7 trillion. If you look at the Problem Solving Caucus, they are at about $1.2 trillion. So the gap between the two has shrunk, and I think there is hope for a bill that will be anywhere between $1.2 to $1.7 trillion. That's the good news.

The bad news is that they haven't agreed on how to fund it. Republicans insist that they will not support a corporate tax increase. Democrats insist that they are only going to use a corporate tax increase to fund that program. So that, of course, is a real issue if they're not able to fund that infrastructure bill.

And then the second concern is that, whether it's $1.2 or $1.7, the fact is it's not sufficient for our infrastructure needs today, and certainly for the 21st century. We need to invest much more in infrastructure. We need to invest probably $2.3 trillion just to keep our infrastructure running. And we need to double that at least.

JULIE HYMAN: Well, Sadek, that's where you come in in terms of public private investment-- you're on the private side of the investment equation. We've seen, of course, in the public markets a lot of people invest in companies that are caught up in infrastructure and hoping for some sort of bill to pass. What's the status of projects right now? Are things sort of waiting for this bill to pass? Or how-- how can you invest when that's sort of hanging over you, I guess?

SADEK WAHBA: Julie, it's a very good point. The problem is this, I can give you a simple example-- you can buy a listed company-- you can buy shares on a listed company that focuses on airports, that focuses on toll roads in Europe, in Canada, in Australia, but not in the US. We simply do not have that kind of public private partnerships.

So we have an antiquated funding infrastructure system, which simply does not work anymore. What's sad is that neither the Republicans nor the Democrats have mentioned once, as far as I know, the word, private sector. And that in America does not make sense.

So we need to encourage the private sector to invest in all of these new projects-- so for example, bringing public and private pension funds to invest the assets that they have under management in long-term infrastructure projects. Encourage households, US households, to invest in infrastructure. So I've proposed in the past the creation, for example, of an infrastructure IRA.

We have 30 million IRA accounts-- $10,000 per account, we can generate $300 billion a year. So that's another mechanism to do it. And a third one is create an infrastructure bank. A bank-- if you take $100 billion from the money we're looking to appropriate in the coming weeks, add that, leverage it and, you can generate a trillion of investments in infrastructure over the coming decades. So the truth is the private sector can play a huge role, but the government has to understand, both houses and the administration, that they are ready and able to do that.

BRIAN SOZZI: Given the uncertainty around any plan, how are you investing in infrastructure right now?

SADEK WAHBA: A lot of the investments that the private sector's doing, of course, is in areas which are mostly deregulated-- so the energy sector, transmission distribution, renewables-- all of these areas have received a lot of attention. Unfortunately, toll roads-- if you think about it, most of the transport infrastructure, 95%, is owned by states, municipalities.

And you know how many of them we have? Over 50,000 agencies that manage our transport infrastructure. So in those sectors, it's very difficult for the private sector to get involved unless they operate on the construction side through subcontracting with municipalities.

JULIE HYMAN: So, Sadek, two related questions-- one, in the US, where do you think the most acute need is when it comes to infrastructure? And two, where do you think the most profitable opportunity could potentially be for you or for people like you?

SADEK WAHBA: The fact is the Biden plan recognizes the need for infrastructure across the board. So think of, for example, water. We've had people, unfortunately, die because we did not have healthy water to drink. So investing in the water sector so that we have clean water for our children is an absolute necessity.

Safe roads and bridges-- again, you have hundreds of billions of dollars that can be invested in those areas. And more recently with a kind of cyber attack that you have, a development of operational technology-- OT not IT. So OT cybersecurity protection is critical.

So you're going to see a lot of investment in those areas in the years to come. So all of these are sectors that people can invest in where you can make attractive, I would say, long-term profits-- steady, long-term profits, which is more than what the bonds would give you but less than what an equity return will give you. It's in between because you have 20 to 30-year stable, predictable cash flows.

MYLES UDLAND: All, Sadek Wahba, Founder, Chairman, Managing Partner at I Squared Capital. Sadek, thank you so much for taking the time to talk with us about the state of infrastructure investing. I hope to stay in touch.

SADEK WAHBA: Pleasure to be here. Thank you.