In early May, Robert Aguallo Jr., a major figure in the world of colossal public pension funds, announced that he was leaving the public sector to take over a fledgling private fund based in Los Angeles. Whatever Mr. Aguallo does is noticed in the financial world, but this time there is a potentially even bigger story behind why he made the move to manage the new fund, called Cardinals Americas. It's a story that could literally change the face of California, and potentially the entire nation.
Mr. Aguallo -- who spent 15 years as COO for investment operations at the California Public Employees Retirement System, the largest public pension fund in the United States, and the past five years managing the $12 billion Los Angeles City Employees Retirement System -- was wooed by private and public entities nationwide, including the states of Arizona and New Mexico. This choice of Cardinal Americas, an unknown private equity fund, surprised many observers.
Although the exact deal that Mr. Aguallo struck with Cardinal Americas remains proprietary, what is not a secret is the focus of the fund. Its directive, which was powerful enough to land Mr. Aguallo as its new managing partner, is to invest in companies that help rebuild the state's and nation's infrastructure. In a nutshell, Mr. Aguallo's bold new move is seen as a harbinger that the United States is poised to invest hundreds of billions of dollars into the rebuilding of roads, bridges, transit systems, water facilities and treatment plants, electrical elements, community colleges, schools, and similar public projects.
The founder of Cardinal Americas, George Pla, a well-known Los Angeles-based entrepreneur, says that the new private equity firm will be the first in the nation to concentrate solely on investing in infrastructure rebuilding. "It's the right time," says Mr. Pla. "The public is in the mood to back these projects because we can all see how badly our cities, schools, airports, and freeways systems need rebuilding. California alone has allocated more than $100 billion to fix its infrastructure."
Mr. Pla, the chairman of Cardinal Americas, is also the president and CEO of Cordoba Corp., which manages large public works projects nationwide, and he is the founder of the Santa Ana Business Bank in Santa Ana, California. He emphasizes that Cordoba and Cardinal Americas are legally separate entities and will not do business with each other. Cardinal Americas has separate offices in downtown Los Angeles. However, it is clear that Mr. Pla's reputation and 25 years of experience in the infrastructure-rebuilding industry will play a major role in convincing financiers to invest in Cardinal Americas. His son, Vincent Pla, is a principal with the new investment firm.
$40 Billion Bullet Train
Mr. Aguallo's move to Cardinal Americas may seem to some as being a high-risk move, but he says he never hesitated once the position was offered. "Any start-up is clearly a risk," he says, "but with the high caliber of people at Cardinal Americas, and with the strength and diversity of the network I've built over the years, I feel comfortable that we can mitigate the risk and build a formidable equity fund that is going to set new trends for others to follow."
Backing Mr. Aguallo's optimism is the fact that California voters, in particular, are showing a strong willingness to pass multibillion dollar bonds aimed at shoring up the state's infrastructure. In addition to the $100 billion in bonds earmarked for infrastructure reconstruction that have already been passed, more are on the drawing board. One significant project is a $40 billion bullet train that would whisk passengers from San Francisco to Los Angeles in under two and one-half hours. The initiative includes an innovative system of state, federal, and private financing. It will go before California voters in November. Polls have shown that 70 percent of the state's voters favor the bond, according to Mr. Pla.
The public's desire to rebuild infrastructure appears to extend beyond California. The State of Illinois Employees' Pension Fund, for example, recently targeted at least five percent of its investments to go to companies involved in infrastructure renovation. "They were one of the first to do so, but recently just about every other major pension fund in the country has begun allocating dollars to infrastructure," says Mr. Pla.
Largest Investment Boom In Recent History
Cardinal Americas, which is only beginning to raise an anticipated $150 million in initial private equity funds, plans to invest only in companies that provide resources surrounding infrastructure development, including architectural, construction, and engineering firms. "We are aiming to raise our first $50 million by August of this year and to have $150 million in investment funds by August 2009," says Mr. Aguallo. "We're looking to buy equity in these companies and make them more competitive. We don't care who owns them, we're looking at their potential profitability -- companies that are currently undervalued."
Mr. Aguallo believes the infrastructure rebuilding effort will generate one of the largest investment booms in recent history. "With municipalities strapped for dollars, they are looking for private equity, and you already have the largest pension funds looking to invest," he says. "Infrastructure development represents the best new marketing opportunity for future investment, and I believe it is poised for tremendous and sustained growth."
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