I Squared's Dr. Sadek Wahba - it's time to "Build"

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]<br