Bill Woodburnshowed up for dinner as a courtesy. It was 2006, and the former head of General Electric’s infrastructure business and Jack Welch protégé had made up his mind to turn down Adebayo Ogunlesi and Matt Harris, the pair of former Credit Suisse bankers who’d invited him for Chinese food. Instead of joining their nascent fund, the sought-after Woodburn was taking a job with Steve Schwarzman’s Blackstone.
To change his mind, Ogunlesi and Harris opted for a soft sell—a departure from what Woodburn knew from GE, where high-pressure persuasion was the norm. They met at Harris’s favorite Midtown Manhattan restaurant, the now closed Tse Yang. Fish glided through tanks in the background as the three talked about raising kids and collecting classic cars. Ogunlesi and Harris barely mentioned the business of buying ports and pipes or raising money.
The low-key approach impressed Woodburn. By the time he headed to Grand Central Terminal to catch a train back to his Connecticut home, he’d reversed course, to his and his wife’s surprise. “I’d told her, ‘This dinner is a formality,’ ” says Woodburn, 66. “I’m not a guy who changes his mind easily. I’m a square-headed engineer.”
Before long, the square-headed engineer and the soft-sell bankers, backed by $500 million each from GE and Credit Suisse, were setting out to find crumbling infrastructure to buy, fix, and profit from. They settled on three investment categories: transportation, energy, and water/waste. Global Infrastructure Partners, founded in May 2006, now manages about $40 billion in assets ranging from ports and pipelines to London’s Gatwick Airport, a liquefied petroleum gas storage facility in Visakhapatnam, India, and a vast wind farm in the North Sea. Over 10 years, GIP has expanded its roster of backers to include some of the world’s biggest sovereign funds and a slate of U.S. pensions. The firm operates three funds. GIP I raised $5.7 billion in 2008. GIP II closed in 2012 with $8.3 billion. In January it announced its latest and largest pool, a $15.8 billion fund, the largest-ever dedicated to infrastructure.
The clamor to participate in GIP’s deals comes from its returns, which are among the best in private equity, promising profits well beyond what’s available in the public markets. GIP II has delivered an average annual return of 24.2 percent, according to data compiled by Bloomberg, putting it in the top quartile of private equity funds.
Potential transactions are seemingly everywhere. President Trump campaigned on a promise to spend $1 trillion on infrastructure, most of it funded by private investment. He appointed Ogunlesi to his Strategic and Policy Forum. Fixing deteriorating infrastructure, combined with new projects in the U.S. and in emerging and frontier economies across Asia and Africa, has given rise to a market that Bain & Co. estimated is worth $4 trillion. As many governments face budget shortfalls that curb such spending, private money is stepping in.
But an airport, for instance, doesn’t exactly operate on its own like a toll road or parking lot, two other staple infrastructure investments. Realizing that about infrastructure—and capitalizing on it—has been GIP’s selling point to investors. “The dated view is that these businesses run themselves,” Ogunlesi says in his deep baritone during a rare interview at the company’s headquarters looking out over New York City. “Our strategy is different.”
“These assets are big and complicated and require expertise that some managers don’t have. The complexity is often underestimated,” says Jay Yoder, a managing director who oversees real asset investments at Pavilion Alternatives Group, an adviser to institutional investors. “That’s what has helped firms like GIP raise money and generate good returns.”
Ogunlesi, 63, was born in Nigeria, where his father was the country’s first professor of medicine after independence. He traveled to Oxford for his undergraduate studies, then to Harvard, where he earned law and business degrees before clerking for U.S. Supreme Court Justice Thurgood Marshall in Washington. Ogunlesi worked briefly in corporate law in New York before joining Credit Suisse in 1983, rising through the ranks to oversee all of the Swiss institution’s investment banking. He’s now the lead outside director for Goldman Sachs, in addition to his role as head of a dozen partners at GIP.
Harris, 55, also came up through investment banking, starting at Kidder Peabody during the go-go mergers-and-acquisitions days of the 1980s. His California roots, including undergraduate work at UCLA, give him a hipster-studious vibe. Harris joined Credit Suisse in 1995 and became a colleague and deputy to Ogunlesi, whom he succeeded as co-head of the energy group at the bank, where a number of GIP partners once worked.
Over one of their regular dinners in 2005, Ogunlesi and Harris wondered aloud what opportunities there might be beyond banking. Infrastructure investment struck both men as white space begging to be filled. Blackstone, KKR, and Carlyle had spent decades building massive firms with hundreds of billions of assets and focused mostly on corporate takeovers and real estate. By the time Ogunlesi and Harris were scheming, the private equity shops were deploying their record-setting pools of capital to buy the likes of Toys “R” Us, Dunkin’ Donuts, and J.Crew. Infrastructure, decidedly unsexy by comparison, was an afterthought at best.
Banks such as Citigroup, Goldman Sachs, and Morgan Stanley created infrastructure funds, with a playbook largely focused on buying and holding, earning steady but not eye-popping returns from the cash the assets generated. What happens between buying and ultimately selling presented the real moneymaking opportunity, Ogunlesi says. “We started talking about what happens the day after we close a deal,” he says. The answer, fast-forwarding to Woodburn’s courtesy dinner, materialized at Tse Yang in the shape of the polite but skeptical engineer. Running GE’s infrastructure business had given him a combination of experience, credibility, and contacts that would impress not only would-be investors but also acquisition targets.
The three men had a combined investing experience of exactly zero years. But they’d been highly successful in their chosen fields—and they were armed with a couple of very big checks. Credit Suisse management knew its two bankers had the connections and expertise to see potential deals around the world. In a stroke of good timing, GE Chairman Jeffrey Immelt had already decided to earmark money for infrastructure investments as part of a larger strategy to go deeper into economies outside the U.S. “We had some credibility from two household names giving us a billion dollars,” Ogunlesi says.
That billion, though, was conditional on raising additional capital from pensions, endowments, and sovereign funds—investors presumably eager for better-than-public-market returns, the kind they were getting in PE and hedge funds. The trio decided they needed a test case. Michael McGhee, another ex-Credit Suisse banker who joined GIP at the beginning and specialized in transportation, suggested buying London City Airport from Irish businessman Dermot Desmond, which GIP did in 2006 for about £750 million ($1.4 billion).
Looking for someone to help run the airport, Woodburn sought the advice of Scott Stanley, who’d worked for him at GE in the plastics business Woodburn ran. Stanley, then chief operating officer at United Technologies’ Kidde division, showed up for a chat and a beer at Woodburn’s Connecticut home, armed with a 1930s book on airfield optimization. As old as the tome was, its lessons proved useful. The two recovering engineers marveled at how you could theoretically use a lot of the industrial processes they’d learned at GE to retool an airport. “An airport is ultimately about moving planes, passengers, and bags through a series of steps,” Woodburn says. “That’s a familiar process to people with experience in manufacturing.”Woodburn persuaded Stanley to leave a job he’d just taken in the U.S. to move to London and work at London City, a small airport 22 minutes by Tube from Bank station in the heart of the financial district. At the airport, Ogunlesi says, the initial reaction was “Why are you sending a factory guy?”
The answer came fast. An exhaustive analysis led by Stanley broke the airport down into units: baggage, food and beverage, and advertising among them. Outgoing baggage jumped out as a major trouble spot; Stanley went to investigate, ditching his sport coat to load suitcases—literally rolling up his sleeves. (In the intervening years, Stanley has begun buying “disposable suits,” so he can work on the line when necessary but then get presentable to meet an investor at a moment’s notice.) He made changes small and large, from buying additional baggage carts to retooling the check-in kiosks; passenger complaints plummeted. Stanley’s since moved on to Gatwick, where he’s the COO of an airport whose single runway handles as many as 55 takeoffs and landings in an hour. That’s the result of an internal campaign—“The Drive for 55,” the sort of sloganeering familiar in factories but heretofore unseen in an airport. “He’s created a revolution there,” Woodburn says.
Woodburn and his partners’ hope is that the revolution can be as profitable as London City’s. In early 2016, GIP sold the airport for an estimated £2 billion, more than doubling the initial investment by the firm and its partners. The buyers, a consortium including Alberta Investment Management, Ontario Teachers’ Pension Plan, and OMERS, edged out China’s HNA Group and Cheung Kong Infrastructure Holdings for the deal.
The ultimate value of London City derives directly from the operators who crawled over every inch of every process, from the placement of retail and duty-free offerings to security screening to air traffic control patterns. Woodburn has tapped into a vast pool of engineers from GE, Stanley Black & Decker, and beyond and added more than two dozen of them to his group. He sells them on a chance to get their hands on an asset in a way that’s unlikely within the confines of a large conglomerate. “These are highly competitive industrial guys,” Woodburn says. “This is a chance to squeeze the lemon like it’s not been squeezed before.”
Most of his recruits speak a language familiar to engineers but foreign to anybody else: Six Sigma, Kaizen, Lean. Woodburn is prone to fall into such jargon. “Anyone who’s been to an airport can say that it’s operating at maybe Two Sigma,” he marvels. “That’s making a mistake 30 percent of the time.”
Beyond Airports, GIP owns pipelines, including a 148-mile network in Switzerland, and ports such as Great Yarmouth on England’s east coast. In mid-2015, GIP struck a $2.7 billion deal with energy giant Hess, creating a joint venture around the massive Bakken Shale in North Dakota. It bought half of Hess’s interest in operations including a gas processing plant, a crude rail terminal, and rail cars.
The Hess deal came about in part through Ogunlesi’s decades-long relationship with John Hess, the chief executive officer and biggest individual shareholder of his family’s business. It’s less about fixing broken infrastructure than about owning and expanding pipes and rails in an area poised in the long term to exploit a still-hearty global demand for fossil fuels, despite recent volatility in energy prices. The partnership is part financial, part philosophical. In the oil patch, Harris says, “the processes we’re expert in haven’t been thought about as much.”
Tying up with Hess was in part a response to what GIP sees as an evolution in relationships among the firm, investors, and investments. Drawing all parties closer together, Ogunlesi figures, will give GIP a substantial advantage over competitors, getting a first look at potential deals.
That’s all the more important because, as the opportunities get bigger and more obvious, the white space Ogunlesi, Harris, and Woodburn saw a decade ago is shrinking. KKR, the 40-year-old buyout giant, said last July it had raised $3.1 billion in 2015 for an infrastructure fund. Blackstone, the largest alternative-asset manager, with $361 billion in assets, sought to raise a standalone infrastructure fund but spun it out as Stonepeak Infrastructure Partners. That firm, with about $6.4 billion in assets, started raising its first standalone fund in 2012.
Brookfield Asset Management, whose $250 billion in assets makes it Canada’s biggest alternatives manager, is best known for its global real estate holdings in key locations, including Lower Manhattan and London’s Canary Wharf. The firm, run by Bruce Flatt, has assembled its own series of infrastructure funds, including publicly traded vehicles. Brookfield in 2016 finished raising a $14 billion infrastructure fund, its largest to date. The increasing competition may make it harder for the incumbents to deliver the sorts of returns they’ve made their name on. One way to cope is to cozy up, selectively, with competitors. Amid talks to buy Asciano, an Australian port and rail operator, GIP and Brookfield, along with a host of the world’s most influential sovereign wealth funds and pensions, weighed collaborating instead of competing.
“The interest on the part of investors continues to rise. Infrastructure is certainly in favor, which you can tell by the size of the recent GIP and Brookfield funds,” Pavilion’s Yoder says. “There’s no doubt there’s a lot of capital coming in. The strong returns generated by some managers may be more modest going forward.”
For its part, GIP started raising its third fund in late 2015. The three founders contend their edge comes from the tight-from-the-outset marriage of deals and operations. You buy it, then you do something with it. “There’s a symmetry between deal and operations guys,” Harris says. So much so that operators and investors assess deals side by side: GIP even puts a finance expert and an operations expert on the board of every asset it controls. The profit pool—carried interest, or “carry” in private equity-speak—includes all executives.
Nor does GIP shy away from shedding elements of its portfolio. In addition to the London City sale in 2016, GIP in 2014 sold its 50 percent stake in Access Midstream Partners, a U.S. natural gas operation, for $2.6 billion, then parted with its half of the Ruby Pipeline, which stretches from Wyoming to Oregon, for $1.4 billion. Its investments aren’t without risk: In the U.K., GIP got caught in a political spat over how best to expand airport capacity in and around London. GIP lobbied for a new runway at Gatwick, but in October the government said it favored a new runway at Heathrow Airport over a Gatwick expansion.
PE firms two decades ago relied largely on engineering balance sheets for their rich returns. Now powerhouses such as KKR, TPG Capital, and Bain Capital not only boast about their operating prowess but also market it actively to investors. But for the moment, GIP is among the few firms willing to pay salaries to almost 30 operators as part of its package.
As he recruits people to join him at GIP, Woodburn thinks back to his own dinner courtship with Ogunlesi and Harris. He stresses to potential hires that the work can be more rewarding than toiling away in a big company; compensation, autonomy, and immediate impact all rank high. There are drawbacks, though, especially when you’re fixing things hiding in plain sight. “When you walk through an airport, all you see are opportunities,” Woodburn says. “My wife hates traveling with me now.”