Show notes
Welcome back to the Alt Goes Mainstream podcast.We went to Miami to sit down with the professor of infrastructure investing and Founder, Chairman, and Managing Partner of I Squared, Dr. Sadek Wahba. Sadek has blended academic knowledge and a practical approach to infrastructure investing to build I Squared into a $60B infrastructure investment firm in 14 years, some of which he has adroitly distilled into the 2024 book that he authored, Build: Investing in America’s Infrastructure.We had such a fascinating and wide-ranging discussion that I’ve decided to break down our conversation into chapters.“We are enormously boring by design”: From the World Bank to building a $60B infrastructure investing behemoth[00:00:00–00:16:19]Sadek has been investing in a category, infrastructure, that he calls “invsible until it’s missing.” He’s brought experience as an economist at The World Bank and running Morgan Stanley Infrastructure as CEO to bear as he has built out I Squared into a leading infrastructure investment firm.Some notable quotes from this chapter:“You open your tap water, you never think where the water comes from … So you take a lot of that for granted.”“For better or worse, it may say something about us being enormously boring, but the only thing we do is infrastructure.”“With the boom in AI, and the need for power and data centers … add another five-plus trillion dollars that will need to be invested in transmission lines, power generation, data centers, fiber optics and all sorts of infrastructure.”No free lunch: ownership, regulation, and the ghost of Flint[00:16:19–00:32:40]U.S. infrastructure has shifted from private ownership to overleveraged municipalities. Sadek breaks down what has gone wrong with different infrastructure investment models around the world by dissecting who owns an asset, who manages it, who regulates it, and why collapsing those three roles into one is exactly what happened in Flint, Michigan.Some notable quotes from this chapter:“I’m sorry to say, but there’s no free lunch. Whether it’s a public good or not, that public good requires inputs, produces an output, and someone has to pay for it.” “There are three things that matter when you think about infrastructure: the ownership of the asset, who manages it, and who regulates it. If the entity that owns, manages, and regulates it are the same, you have a problem.”“They managed it, they regulated it, and they owned it. So if I wanted to complain to the regulator … the manager is the regulator. But the real owner is the manager who’s also the regulator.” (Sadek on what happened in the Flint, Michigan water crisis).If it sounds too good to be true, it probably is[00:32:40–00:51:06]Sadek takes us inside I Squared’s investing playbook. He discusses why they walked away from a Norwegian gas deal promising 14-15% returns, and why regulatory risk is the hardest thing to underwrite. Sadek also shares where he believes value is created in the next decade.If it’s too good to be true, then it’s probably not true. And that, for me, is rule number one.” “How can you make a return of 14%, 15% on something which is a hundred percent regulated and where you take very little risk? That, to me, doesn’t exist.” “The adoption of AI technology is probably the single biggest opportunity we see in infrastructure over the coming years.”Fishing in a different pond: the mid-market and the democratization of infrastructure[00:51:06–01:07:19]Sadek explains how a firm that has a $15B fund to deploy still focuses on the “mid-market,” why banks have abandoned the $50-100M loan, and why individual investors can play a role in financing assets that they use every day.“Our funds could be $15B in size … people say, “You’re joking, right? That’s not mid-market” And the answer is, well, no, it is … because we invest globally.”“I hope the day comes where most airports in the US are not owned by funds, but they’re publicly listed. Instead of being owned by a municipality, you and I can buy the shares of that company.”“If regulators are not paid, they’re not incentivized to do a good job.”Onshoring, national security, and what drives Sadek[01:07:19–01:17:15]Sadek shares why private capital can help fill the gap for funding infrastructure needs as growing government debt makes it harder for governments to keep footing the bill. He also discusses the case for onshoring beyond politics and what motivates him. “Private capital will per force play a critical role if you want to maintain sustainable economic growth rates. If you want lower per capita income, if you want higher unemployment … then don’t have the private sector invest in it.”“I can think of two reasons [for onshoring] that have nothing to do with politics: national security, and supply chain issues."“What drives me is to be able to produce something that people find useful, that people use to better their lives. And if you can do that in any small way, I think that’s enormously rewarding.”BioDr. Sadek Wahba is Chairman and Managing Partner of I Square Capital, an independent global infrastructure investment manager based in Miami, Florida, with $60 billion in assets under management.He has worked at Morgan Stanley where he was the CEO of Morgan Stanley Infrastructure, a global platform for infrastructure investment and as an economist at The World Bank. Sadek is an advocate for transformative approaches to infrastructure investment and a frequent commentator about the need for more investment in infrastructure to promote sustainable economic growth. He was a presidential appointment to the National Infrastructure Advisory Council, which advises the White House on reducing the physical and cyber risks and improving the security and resilience of critical infrastructure in the U.S. He was part of the expert committee on the World Economic Forum’s first report on global infrastructure investments and was named Global Infrastructure Personality of the Year twice, as well as Global Infrastructure Personality of the Decade, by Private Equity International (PEI). He frequently appears on Bloomberg, CNBC, Nasdaq, and other networks, including Op-eds in the Financial Times and other leading journals.He holds a Ph.D. in economics from Harvard University, an M.Sc. I economics from the London School of Economics (LSE) and a B.A. I economics from the American University in Cairo. He is a published author on economic research and one of his publications was selected by MIT as one of their 50 most influential papers in the last 50 years His book Build: Investing in America’s Infrastructure published by Georgetown University Press published in 2024 is in its second printing.Sadek is a Senior Fellow at the Development Resea...