Weekend reading links

1. The solutions proposed by Andy Haldane to address housing supply in the UK is universally valid.

Public land developed for public purpose but privately operated; co-financing by municipal bonds and private capital; a bespoke planning regime; and a transformative method of new construction — these are the base elements needed to ease the constraints suffocating the UK’s housing market and to tackle the housing crisis in every postcode.

2. Talk about a company mobilising debt for others to buy its products, and look no further than Nvidia.

The world’s largest financial groups are working with Nvidia to assemble a funding package of more than $500bn for AI infrastructure development, in one of Wall Street’s most ambitious lending efforts to date. A consortium of groups including Apollo Global, Blackstone, BlackRock, Brookfield Asset Management, Goldman Sachs and KKR is entering a partnership with Nvidia to invest in the AI build-out... Nvidia said on Monday afternoon that it has signed memorandums of understanding with the six Wall Street firms to “mobilise over $500bn of third-party capital for the build-out of AI infrastructure over time”. Under the deal, which is still subject to final agreement, the firms will create dedicated pools of capital to finance Nvidia’s AI ambitions “at attractive rates for Nvidia customers”... Morgan Stanley projects so-called hyperscalers will spend $3.5tn between 2026 and 2028.

3. India manufacturing output trends.

But services exports have doubled in less than four years.

4. Israel's scorched earth policy in South Lebanon.

Weeks into the latest conflict, defence minister Israel Katz invoked a different approach, one used with devastating consequences after Hamas’s October 7 2023 attack: the “Rafah and Beit Hanoun model”, a reference to Israel’s wholesale levelling of cities in Gaza. “All homes in Lebanese villages near the border will be destroyed,” Katz said. By July, Katz claimed his threat had been carried out. “Twenty-four Lebanese villages, hundreds of years old, we destroyed all the buildings,” he said, boasting that up to 20,000 homes had been demolished. “Not house by house, but entire villages.”...

Israeli evacuation orders forcibly displaced some 1.2mn people in the war’s first 10 days, the vast majority from Hizbollah-dominated southern Lebanon, as Israeli forces advanced. Fighting raged for weeks, but most of the destruction documented by the FT and Lighthouse came after an initial Israel-Lebanon ceasefire on April 17. While the truce did not hold and some clashes have continued even past the latest ceasefire in June, Israeli forces — who had already established control over many emptied villages — continued to lay waste to the south through air strikes, controlled detonations, bulldozers and the use of white phosphorus. Israel’s occupation is now deeply entrenched, the area under its control demarcated by what it calls “the yellow line”. The zone covers about 6 per cent of Lebanese territory and stretches roughly 10km inland from the two countries’ informal border...

Israel has also done extensive damage to historic monuments and Unesco-listed sites, including 16th-century mosques, 19th-century libraries, religious shrines, ancient Roman ruins and Crusader castles. “It is an attempt to make the areas unrecognisable . . . to sever people’s connection to their land and their history,” said Joanne Farchakh Bajjaly of Biladi, an organisation dedicated to preserving Lebanon’s cultural heritage. “How can they rebuild their communities if everything is gone?”... Lebanon’s environment ministry and rights groups have documented Israel’s widespread use of white phosphorus — an incendiary chemical that triggers fires and can leave contamination in soil and water — in both populated and agricultural areas. Israel says it uses white phosphorus lawfully to clear brush and create smokescreens, but use over populated areas can violate international law.

5. Janan Ganesh is on to something.

If a politician could decouple socialism from the set of cultural ideas known as “woke”, he or she would be difficult to stop... The one place that might have produced a culturally conservative or at least culturally neutral socialism is continental Europe, but even the French left has absorbed American woke jargon, perhaps recognising in it the authorial stamp of Michel Foucault. And so capitalism glides on, never quite facing what would be its sternest political test. The question is why the left allows it to happen... Woke has been such a godsend for capitalism — making its enemies look ridiculous — that it can seem almost engineered for that purpose.

6. Purchase commitments of the hyperscalers jumped from a trillion dollars to 1.5 trillion from Q1 to Q2 of 2026. These are debt in another form. 

7. Guy Chazan describes elite capture of the political system in the US.

In America’s Gilded Age, millionaire robber barons operated from the shadows, bribing pliant lawmakers to do their bidding. Under President Donald Trump, billionaires have gone one better. Some are in his cabinet... No longer content to lobby from afar, ultra-rich tycoons — especially from Silicon Valley — have infiltrated the capital’s ecosystem, taking on advisory roles in government, cultivating ties on Capitol Hill and weighing in on the most important issues of the day, from AI to industrial policy. They attend glitzy dinners, donate millions to White House fundraising projects and are photographed with Trump promising eye-popping investments in the US. Many have enjoyed regulatory relief, policies that benefit their businesses and, in some cases, lucrative government contracts worth billions of dollars. But unlike the robber barons of the past, who were often charitably minded and gave generously to public institutions, the tech billionaires of the present show a “complete indifference” to any kind of “social contract” and any need to “compensate people for the disruption they have brought into their lives”, says Quinn Slobodian, a historian of capitalism at Boston University...

If there was a trigger for the growing influence of the ultra-rich in America’s political system, it was the Supreme Court’s 2010 Citizens United ruling, which held that independent political spending on elections by business was protected by the First Amendment. The judgment opened the floodgates to big money in politics. America’s rich had spent $31mn in the 2010 elections, according to liberal advocacy group Americans for Tax Fairness (ATF). In the 2024 election cycle, the 100 largest billionaire donor families gave $2.6bn. A huge proportion of that came from just a handful of individuals. Three billionaires — Elon Musk, Miriam Adelson and Timothy Mellon — accounted for more than a third of the roughly $1.5bn spent to elect Trump.

8. C Thi Nguyen has a brilliant essay on the value of doing something for its own sake or as labour of love (play, as he describes it), and doing something as part of a requirement (work, as he describes it). He channels Aristotle (through Bernard Suits' The Grasshopper) to describe it as the core of a meaningful life. 

For Suits, play is not just a side dish for the main meal of work. Play is at the core of a meaningful life. Underneath the hood, Suits’ argument is Aristotle to its bones. For Aristotle, a good life — a truly meaningful life — lay not in the creation or accumulation of stuff or the achievement of outcomes, but in the process of doing itself, in the rich exercise of our full human capacities. Suits found the deepest illumination of Aristotle’s point in the simplest human activity: playing games. Suits provides, and defends, his definition. To play a game, he says, is to voluntarily take on unnecessary obstacles to make possible the struggle to overcome them. To play a game, therefore, is to be inefficient on purpose. When you run a marathon, you are trying to get to a particular spot in space, but you avoid the most efficient ways to get there. You do not take a subway or a taxi or a bicycle. You force yourself to run, and you try to run as quickly as possible. Which means, for Suits, that the struggle must be an essential part of the true value. What you care about can’t just be the bare outcome by itself. You can’t just care about being at that spot in space. Otherwise you’d just take the most efficient path. But if you took the subway then it doesn’t count — not for the game of marathon-running, anyway...

To understand games, distinguish between two things: the goal of a game and your purpose for playing it. The goal is what you pursue inside the game; the purpose is why you played it... For some people, the goal and purpose are one. They want to win, period. Call those people achievement players. The Olympic runner wants to win the marathon by running it — but they do truly care about winning it. But for other people, goal and purpose come apart. We try to win because we are interested in the struggle, and it is the struggle itself that we truly care about. Call us striving players. It’s all right if we try and we lose, if the attempt was beautiful. In ordinary, practical life, we take the means for the sake of the ends. In striving play, we take the ends for the sake of the means. What is the point of life? Is it to make stuff? Or is it to take difficult actions, think rich thoughts, weigh subtle decisions? Is it having a pile of stuff — or does the stuff just support our quest for interesting action?... Suits argues... that play itself is the point, and that we work in order to survive so that we might play...

Rephrase Suits’ definition this way: play is wasting resources for fun. But also: the whole point is that, deep down, it’s not a waste. A truly wasted life would be one spent working hard, stockpiling goods like the ant and never using them to support joyous play. And to truly waste humanity would be to push people so hard to work productively, to make more stuff, to the point where nobody had time to play. Let me try my own fusion of these two definitions. “Work” isn’t distinguished from “play” by difficulty, suffering or practicality. You can make pottery, knit scarves or grow a garden as play. The true difference between work and play is the reason you have, and the control you have, over what it is you’re doing and why. Here’s my suggestion: to “work” is to perform activities to create outcomes that are set by something external. When you work, you are making what the world tells you to make. Maybe you’re gathering food, because biology tells you you have to eat. Maybe you’re earning money, because the world says you need money to buy food and shelter and medicine. Maybe you’re making products, because the world wants something specific from you — planks of wood, a ride to the airport. But “play” is different. You still have goals and struggles, but your goals are up to you.

9. Two important graphics on the Chinese economy. One, the great job squeeze resulting in the rise of the gig economy, whose workforce has increased by 10 million in just two years.

Second, the persistence of negative household sentiment for the fifth successive year.

10. Andrew Puzder, the US ambassador to the EU, draws attention to the substantive equivalence between US tariffs (50% tariffs on primary steel) and the EU's CBAM on their respective steel and aluminium imports. 

Protesting against US national security measures while erecting protectionist barriers reveals a striking double standard... The US approach is direct and transparent. Primary steel faces a 50 per cent tariff (with some rates recently increased), and aluminium a comparable duty. To stop circumvention through finished goods, the tariffs extend to derivatives... CBAM differs in form but not in substance. Importers of iron, steel, aluminium and related products must report embedded emissions and relinquish a corresponding number of CBAM certificates priced at the EU’s carbon price — currently around €80 per tonne of CO₂... At root, both policies are adjustments to protect domestic producers from unfair competition, whether from lax environmental rules or subsidised excess capacity. US Section 232 tariffs address foreign overcapacity that threatens to hollow out its metals sector; CBAM is designed to combat carbon leakage, when production shifts to jurisdictions with less stringent climate standards... In both cases, the measures raise the cost of imports to safeguard local production. The parallels are unmistakable. A shipment of steel-containing machinery faces extra US duties based on metal content. In the EU, the same goods face fees based on production emissions under CBAM. One is framed as security policy; the other as climate policy. Both increase the price of targeted imports relative to domestic options.

11. The US equity market today in perspective. 

A graphical summary of India's manufacturing challenge

As AI threatens to hollow out commoditised IT jobs that have created a generation of Indian middle class, manufacturing appears even more important for good job creation. 

However, manufacturing’s share of GDP has been declining, falling from 17.1% in 2010 to 13.4% in 2025.

Between 2017-25, manufacturing's employment share has remained unchanged at 12.1%! 

India could not leverage the opportunity presented by the global value chain diversification away from China. Countries such as Vietnam and Bangladesh have capitalised on labour-intensive manufacturing. 

As a result, direct export-related employment fell from 9.5% to 6.5% of total employment (2012–2020, World Bank).

It does not help that India's manufacturing labour productivity is abysmally low. 

India’s labour market challenge is two-fold. At the extensive margin, it must produce more good-quality jobs, ones that are productive and also pay reasonably well. The subsistence gig-economy jobs cannot create the middle class required to sustain broad-based high economic growth rates. Manufacturing is critical to this good job creation agenda. At the intensive margin, the existing jobs must become more productive and labour wages must increase proportionately. Export competition is central to increasing productivity. 

I’ll blog separately on the labour market challenge.

A template of a localisation scheme for smart meters

I have blogged here and here outlining an industrial policy to promote domestic innovation in electronic products. The policy should identify a few (say, 3-5) products and encourage phased localisation over a five-year policy regime using a combination of targeted incentives and mandates. 

No product is more appropriate for such a policy than smart meters, on which India has launched a massive scheme (the RDSS) to replace the existing 200-250 million electromechanical and basic digital meters with bidirectional prepaid meters by the end of 2028. This amounts to almost a 10-year Rs 2.4 - 3 lakh Cr contract. Given that almost all meters are procured by government-owned discoms with the central government subsidy under RDSS, it is a perfect opportunity to use incentives and mandates.

The meters are rolled out largely on a TOTEX model, where private Advanced Metering Infrastructure Service Providers (AMISPs) finance, install and operate the meters over 8-10 year contracts, paid per meter per month (of around Rs 60-80). The AMISPs, in turn, procure the meters from OEMs like Secure Meters, HPL, Schneider, Landys+Gyr, and Genus. The major AMISPs are Adani Energy, Intellismart (now purchased by Adani Energy), Genus, GMR, Tata Power, and Techno Electric. This market concentration, on both the AMISPs and the meter manufacturers, while a risk, also makes it easier to implement any phased localisation policy. 

The smart meters are currently assembled in India, with all three major components being sourced externally from foreign suppliers. In terms of its technology, a smart meter is a rugged, always-on computer with three core integrated circuits (plus a latching relay, which is an electromechanical switch rather than a chip). They are the metrology IC (the sensor), the microcontroller unit (MCU) (the brain), and the modem (the voice) of the meter, and they differ sharply in complexity, which makes a phased localisation strategy possible. 

Fortunately, India has a few chip design startups who have already commercialised the metrology-plus-processing layer, and with credible domestic microcontroller unit design. The narrowband IoT/4G baseband for the modem is a genuinely hard one, though achievable in a phased manner given the commercial incentives that come with a policy. 

The table captures the smart meter components and the current market landscape. 

I have blogged here highlighting the entry barriers arising from financing challenges and deployment opportunities (given the lack of Indian OEMs) for indigenous chip design firms to break out in the chip design market. In this context, the massive volume of subsidised smart meters procured by discoms is an unmatched deployment breakthrough for the domestic chip design industry. 

This opportunity can be harnessed through a general “product-mission industrial policy” built on four levers: aggregate demand, mandate and phase, bridge OEMs to chip firms, de-risk capital. The 200 million meters (≈600 million chips) is the rarest asset in industrial policy: demand that is enormous, captive, and shaped by the state itself. India is already partway there, having commercialised indigenous meter silicon (Azimuth AI’s ARKA GKT1 and MosChip’s Vidyut).

There are two commercial firms in the smartmeter contract - the AMISPs and the meter OEM. The two parties hold complementary assets - the AMISP holds the bankable multi-year volume and the government’s contractual leverage; the meter OEM holds the design capability and intellectual property (IP). The most incentive-compatible contracting arrangement would be to anchor the mandate in the AMISP/TOTEX contract, cascade execution to the OEM, and pay a per-meter incentive that neutralises the early cost gap. An OEM-only mandate fails on volume, and an AMISP-only mandate fails on capability and gets passed through as cost. 

An illustrative localisation phasing and incentivisation is indicated, which would amount to a total subsidy of Rs 1000-1200 Cr, or less than 0.5% of the total project cost and about $1.6 billion of total chip cost over 5 years. The per-meter incentive neutralises the early cost gap, and it tapers off as volume rises. This would amount to localisation of 60% of the chip design for smartmeters. The numbers could be tweaked and finalised after consultations involving all stakeholders - OEMs, AMISPs, and chip design startups. 

I am assuming only the localisation of the chip design, and not the fabrication (amounting to about 60% of the chip cost), thereby enabling domestic capture of about $1 bn of chip value besides the development of invaluable chip design capabilities at scale. However, the central government could target even the fabrication of the higher-nanometer chips under the Semiconductor Mission. At the least assembly, testing and packaging (ATMP) could be localised in parallel.

This would be a genuinely end-to-end localisation achievement that can be emulated for certain other products like surveillance cameras, Fixed Wireless Access (FWA) and other customer premises equipment, automotive chips, etc.

The details are important. The target is chip design - ownership of the IP and the front-end engineering - not fabrication. An Indian-designed metrology or MCU chip can be fabricated at a foreign foundry (TSMC, UMC) or, increasingly, at an Indian one (Tata-PSMC, and the Micron and Kaynes/CG packaging lines) and still deliver the objectives of domestic IP, design jobs, security assurance and value capture. Fabrication indigenisation is a different decade-long, capital-intensive problem, albeit achievable now in some degree with the Indian Semiconductor Mission (ISM). For a country which originates 30-40% of the world’s chip-design talent, this is the natural place to start.

To prevent gaming and ‘badge engineering’, ‘indigenously designed’ must be defined tightly - the IP is owned by an Indian entity and the RTL design and tape-out are done in India, verified by a third party - and not an imported design with a domestic label.

The biggest challenge would be to support the domestic startups quickly build design and testing capabilities to meet the large volumes they must commit (including the continuous technology and standards updations). This will require the OEMs and AMISPs working closely with the chip design startups. They could offer some form of advance market commitments to the chip design startups that would allow them the runway to raise capital and finance their rapid capabilities development. 

The success of this will depend on its ownership by the Ministry of Power, which would need to work closely with the Ministry of Electronics and Information Technology, which currently run the electronic products and components schemes and the semiconductor mission.

As an important requirement, there should be no relaxation of the quality and standards requirement from the domestic chip designers. They should pass the same accuracy and reliability tests required by incumbents. In fact, they (either directly or through the meter makers) should also be nudged with soft targets on exports so as to create the incentives for maintaining global competitiveness. If they are unable to with all the support, then perhaps it might be justifiable for the government to throw up its hands and reconcile itself to the quality of Indian entrepreneurship.

Some thoughts on private equity in infrastructure

I have written about the problems with private equity (PE) investments in infrastructure. The argument has been that infrastructure is a boring asset with low but stable returns, hardly the kind of asset that would excite high-return investors like PE funds. However, over the last 15 years, private capital has flowed in large amounts to infrastructure assets. And it has resulted in some spectacular failures, most famously Thames Water in the UK and water privatisation in general.

This post will offer an important qualification of this view to avoid the impression that private capital, in general, has no place in infrastructure. 

Let’s start with the same UK water sector itself. FT recently reported that the PE group EQT snapped up a 42% stake in strained UK water utility Yorkshire Water’s parent company Kelda Holdings at £9.4bn (with 5.7 million customers in northern England) at 90% of the company’s regulated asset base. 

Yorkshire Water… is under close watch by regulator Ofwat, which warned last year that it was “lagging behind” on pollution. Ofwat demanded the company repay a £600mn loan amid concern about its finances and EQT agreed to contribute to the loan’s repayment as part of the deal… In the 30 years to 2024, Ofwat data show that listed water companies were valued on average 10 per cent higher than their regulatory capital value — the asset base on which they are allowed to earn a set return through customer bills. Between 2017 and 2024, stakes in UK water companies sold at a 36 per cent premium to their regulatory capital values, according to a court filing in a Thames Water case. But EQT’s deal for a 42 per cent stake in Yorkshire also demonstrates continuing interest in the sector despite big shareholders in Thames Water previously declaring the largest water utility “uninvestable”… A decision to allow some water companies to raise bills by more than half between 2025 and 2030 was a key factor in EQT’s decision to buy into the sector. 

Yorkshire Water’s problems are only a microcosm of those faced by Thames Water, which serves 16 million customers in London, and is trying to stave off nationalisation by the incoming Labour government of Andy Burnham. The heavily indebted Thames Water’s lenders have recently offered a “golden share” to the UK government (similar to that held in Royal Mail) as part of a bid to keep it private and avert nationalisation. The creditors have been in control of the utility since its shareholders walked away in 2024 and have been talking to Ofwat to take formal ownership before it runs out of money by October 2026. 

The government is expected to announce whether it will temporarily renationalise Thames Water under its special administration regime (SAR) within weeks. That could spark a legal battle, with lenders appointing law firm Pallas Partners and indicating they would continue to bid for the utility once nationalised… The senior creditors previously offered to inject £3.35bn of new equity into the utility and stump up £3.25bn of fresh debt. The group is also asking Ofwat to waive certain penalties until March 2030 in exchange for a one-off £800mn payment to the business… The group of creditors, which represents holders of about £17bn of the utility’s debt, is planning a stock market listing of the business as early as 2030.

In simple terms, the distressed-debt and PE funds now offering a golden share and pledging to reinvest all profits are being forced back into utility-like behaviour by the credible threat of state administration.

However, it is hard to imagine any scenario through which this restructuring can address the underlying insolvency of Thames Water as an asset. This is merely kicking the can down the road. A sustainable resolution would require significant haircuts for creditors, sharp squeezing of costs, significant maintenance and capex investments, and running the utility on thin margins for long enough to reach a sustainable debt pathway. It is hard to achieve all this under PE management. So this appears to be the latest in the series of pass-the-parcel routine that Thames Water has been going through.

To better understand such investments, the table below shows the likely returns from various categories of infrastructure investments. 

If an asset’s true economic return is 4–6% because a regulator sets it, and the private fund must clear a 12–20% net IRR to justify its fee load and honour its LP promise, the ~10-point gap cannot come from operations, which are capped by the regulator. It has to come from somewhere, and there are only four options. 

The first option of leverage (i.e. excessive) is fatal in a regulated asset base (RAB) framework since debt-service costs enter the allowed tariff, thereby making the customer pay the interest bill. It is about socialising the financing choice. The second option is tax structuring of the kind that Macquarie did when Thames Water paid no UK corporation tax during its ownership tenure. The third option is to skimp on cost and maintenance by deferring capital investments, stretching maintenance schedules, socialising externalities (sewage, leakage). Finally, there is the option of dividend recapitalisations, multiple arbitrage, and ‘pass the parcel’ secondary sales. 

The balance sheet on the UK water sector privatisation over the 32 years is instructive in so far as it exhibits the use of all four options by PE investors. The sixteen monopolies paid out roughly £78bn in dividends against about £190bn of capex. At the same time, net debt rose from zero at privatisation to the £60–72bn range, much of it borrowed to fund the payouts and loaded onto customers’ bills. Thames alone now carries over £19bn of debt - the highest of any UK water company - after a £3bn rescue loan at 9.75%, was fined £123m by Ofwat in 2025 (the largest ever, including £18m for unjustified dividends), and has been allowed a 35% bill rise to 2030 despite losing roughly a quarter of its treated water to leaks. On the investors’ side, Water UK claims £236bn has been invested since privatisation.

Water is representative of several low-risk and low-but-stable-return sectors (also here) in which private capital has been deployed, such as health, education, prisons, veterinary care, and public housing. Research (also here) shows that PE ownership of clinics raised short-term mortality by about 10%, implying roughly 21,000 additional deaths over the sample, while increasing spending by 19%, the vast majority billed to taxpayers, via lower nurse staffing, worse patient well-being, and reduced compliance with care standards. Similar concerns are highlighted in the Indian context in education and health sectors in a recent oped which argued that in the absence of an independent statutory regulator with outcome-disclosure powers, the extraction by PE runs through billing intensity and selective access rather than balance-sheet gearing. 

There are some generalisable lessons from the history of PE funds in infrastructure and similar sectors. Wherever four features coincide - an essential service, a captive or vulnerable user who cannot judge quality at the point of purchase, a third-party payer (the taxpayer or the ratepayer), and an implicit public backstop - high-powered return incentives invariably create faultlines. 

In this context, as a slight digression, I came across a brilliant articulation by Aswath Damodaran of how alternative investment strategies have lost their way in the quest for scale. 

His broader point is that hedge funds, private equity, and private credit… began as a genuinely good niche business solving a real problem. Hedge funds 30 years ago produced positive alpha, beating passive investing by 3 to 5 percent annually. Today they look like expensive mutual funds, underperforming passive by roughly 1.5 percent. Private equity started as a focused, disciplined strategy for a small set of operators and has grown into a sprawling category that now struggles to deliver the returns that justified its emergence. Private credit had a legitimate original purpose, which was lending to borrowers that banks structurally could not serve. What killed each of these businesses was the same disease. Overreach. A $200 billion niche business gets sold as a $20 trillion opportunity. When that scaling happens, sloppiness follows, bad actors enter the space, and the average quality of every participant deteriorates. The original alpha disappears not because the strategy stopped working, but because too much money chased too few good deals.

The danger with private credit is far more severe than the parallel problems in private equity and hedge funds. Equity investors take their losses and move on. Lending businesses, when they overreach, take others down with them. Banks. Pensions. Insurance companies. Sovereign wealth funds. The systemic linkages run far deeper than most participants understand, and the social costs of a real default cycle in private credit would extend well beyond the funds themselves… the industry is repeating the exact mistake that produced every previous credit crisis. Take a good idea, scale it past its natural capacity, attract bad actors with the promise of easy returns, and wait for the inevitable cycle that exposes how much of the underwriting was never serious in the first place.

I have blogged earlier here and here about Ludovic Phalippou’s extensive research on PE returns (here and here). Across three large datasets for the period 2006-20, PE funds delivered net Multiple of Money (net-of-fee) of ~1.55–1.63x, or about 11% annually, matching public equity indices in the same period. During that time, roughly $230bn in carry accrued to a small number of managers, with the number of PE multibillionaires rising from 3 in 2005 to 22 by 2020. Much of the apparent outperformance, he shows, came from choice of benchmark rather than from the returns themselves.

Now, back to our examination of PE in infrastructure sectors. 

Given all the aforesaid, investing in infrastructure becomes a rational choice for PE funds. Once the alpha is gone but the fee structure and the promised IRRs remain, reaching into stable, socially backstopped, “boring” cashflows is not a puzzle. It is the rational move. Those assets are attractive precisely because they are low-risk and captive: low-risk cashflows can bear more leverage, and an essential service that the state cannot let fail carries a free option on the public balance sheet. The infrastructure fund is not, in economic substance, buying a low-return asset. It is buying a levered claim on a government guarantee.

In short, a return-maximiser in a regulated essential monopoly is not investing in a low-return asset at all, but it is buying a levered claim on the public balance sheet, which is why it is drawn to “boring” cashflows. Its investment is not despite the low returns, but because low-risk, captive, socially-guaranteed cashflows can support an extraction that competitive assets cannot.

Some important qualifications are in order lest it be seen as a sweeping claim that private capital investment, especially private equity, in infrastructure is uniformly bad. 

As I have written here, infrastructure is not one asset class. PE investment becomes problematic when three conditions coincide - a regulated natural monopoly with captive demand; an essential service the state cannot allow to fail; and returns set by a regulator so operational upside is capped. Water and sewerage hit all three. But they do not apply to a large and growing share of infrastructure segments like fibre, data centres, batteries, new technologies etc., where higher returns are legitimately earned by bearing real development, technology and demand risk. There, return-seeking capital is not merely tolerable, but given fiscal constraints, it is arguably necessary, because patient capital typically won’t take the associated construction and demand risks. 

The question should therefore not be about the asset’s headline return but its structure. “Should return-maximisers be in low-return assets?” is the wrong question. Instead, “should they own regulated essential monopolies whose returns are capped and whose failure is likely to be socialised?” is the right one.

It must also be acknowledged that it is not the specific vehicle of PE that is the problem. Apart from Macquarie, an infrastructure fund manager and not a classic buyout shop, Thames’s later owners have included pension and sovereign funds (OMERS, USS, CPPIB-type investors), some of which geared just as aggressively. The largest infrastructure owners today are pension/SWF/insurer capital, though much of it is deployed through fee-charging, IRR-targeting fund structures (Brookfield, GIP-BlackRock, KKR). The problem is a configuration - high return target plus leverage plus regulatory arbitrage - that any owner, including a public pension, can adopt. 

Finally, there are the issues of competition and regulation. Too much return-seeking capital chasing a genuinely competitive asset pushes returns down toward the asset’s true economic return. However, in the absence of competition, as with captive-customer monopolies with a public backstop and a weak regulator, incentive distortions emerge quickly. Here the deficiency of regulatory competence and/or avoidance of regulatory capture assumes significance. 

In conclusion, the problem with private capital in infrastructure arises when there is a combination of return-maximising capital, high leverage, regulator-capped returns, captive users, socialised failure moral hazard, and a weak or captured regulator. This is a recipe for systematic transfer of value from the public to investors through a pass-the-parcel game, presented as investment and public-private partnership. 

The policy challenge then is to match the ownership and return model to the asset’s structure, and where the asset is a regulated essential monopoly, regulate the balance sheet, not just the tariff. This aligns with the findings of the UK government’s Cunliffe Independent Water Commission (July 2025), which, apart from proposing the scrapping of Ofwat in favour of a single integrated regulator and nine regional water authorities, also proposed a supervisory (rather than arms-length) regulatory approach and mandatory asset-health monitoring. This goes against the conventional wisdom on regulation and is exactly in line with the patient capital under active public oversight approach proposed in the long paper here. 

The main takeaway for India is not to import the UK’s RAB-plus-leverage-plus-socialisation architecture, but to reserve genuinely patient capital (NIIF/NABFID-type, pension, insurer, etc.) for revenue-generating infrastructure assets (or Core I/II from the paper here), admit return-seeking capital only where the asset is genuinely commercial or greenfield and bears real risk, and in TOT-style road or water monetisation, get the discount rate and the balance-sheet ring-fence right before the concession, not after the renegotiation. 

Most importantly, these assets should be regulated with active supervision, including of financing practices, and close asset-health monitoring. This is especially important since, when stripped to its bare bones, the binding constraint to the successful management of private investment in any kind of regulated asset is regulatory capacity and independence. Unfortunately, both are challenging, even in developed countries.

Weekend reading links

1. US equity markets fact of the week.

In the year to March 2026, the US received well over $600bn in net equity inflows. Not only was this a record sum, it was also double the flow into government and agency bonds. Net equity flows exceeded debt flows by the largest margin in history.

2. US utilities are shifting from net metering to net billing on rooftop and home solar installations.

Many utilities pay homeowners the same rate they charge for electricity, meaning the energy sent to the grid when the sun is out offsets the cost of the energy pulled from the grid at night. That’s called net metering, a system where the energy you send is worth typical U.S. prices of 10 to 30-plus cents per kilowatt-hour. Under newer policies, often called net billing, utilities buy the extra energy back at a lower rate, often 2 to 10 cents.

3. In a country ravaged by deflation (pork prices have hit a 16-year low), egg prices are rising in China.

Egg prices are up by more than 40 percent from a year ago, according to an index that tracks the top producing provinces. They recently hit a 10-year high by another benchmark that tracks prices at a wholesale market in Guantao, in northern China... Two years ago, farmers started expanding after several bumper years, adding more egg-laying hens from 2024 to 2025 than ever before, according to Aspen Li, an analyst who studies the egg market. Suddenly, there were too many eggs and the price plunged. Farmers then found themselves short of money to feed all their chickens. So they culled them, at a rate that experts considered excessive. Eventually, there were not enough egg-laying hens to meet demand, sending prices to levels that Mr. Li said were “even higher than my expectations.”

4. Japan's return to normalcy.

5. President Xi's flagship Belt and Road Initiative (BRI) projects hit a record $20.1 bn in green energy financing in the first half of 2026, topping its total value for the whole of 2025, 

Total BRI deals rose to a record high of $126.3bn in the first half of 2026, up from $123.3bn in the same period in 2025. The 2026 figure was composed of $49.8bn in investment and $76.5bn in construction projects.

A distinguishing feature of BRI projects is the increased share of the private sector.

The latest data highlighted how the BRI had become primarily driven by private companies rather than China’s state-owned enterprises. According to the University of Queensland data, the share of engagement from the private sector, as opposed to SOEs, reached 48 per cent in the first half, compared with 13 per cent in 2022.

6. The Great Divergence between labour productivity and wages. 

Labour's share of income has fallen sharply.

7. Tata Zudio is following in the footsteps of Zara.

Despite its bargain offerings, Tata said gross margins at Trent, which includes the more upmarket Westside clothing stores, stood at 44 to 45 per cent. “The playbook is you go end-to-end — you go from the source of the product to the customer and you do everything yourself in between,” he said. “That’s why we do our own transporting. We do our own warehousing. We have our own shops. The manufacturing units we use are more or less dedicated to us.”... Zudio eschews online retailing, believing that high return rates clog up the operation and generate too much extra cost.Rapid turnover is key to Zudio’s appeal. New lines are launched every Thursday and a team of social media watchers monitors fashion trends and feeds them to a design team.

8. The IPOs of SpaceX, OpenAI, and Anthropic could generate a massive flush of philanthropic capital.

Nan Ransohoff, the head of public goods at the payment processor Stripe, estimated in a Substack post, between $37 billion and $100 billion could become available to charities annually... And that doesn’t even include OpenAI’s employees. Or the newly rich created by SpaceX, whose I.P.O. spawned an estimated 4,400 millionaires (and some 400 employees now worth more than $100 million). Or the many other IP.O.s on the docket... Giving money away is a common maneuver to avoid taxes: Up to 74 cents of every dollar donated to charity would have been paid as taxes, according to the Institute for Policy Studies. It reported that charitable giving in 2022 alone had resulted in $73 billion in lost tax revenue.

9.  Debt service and defence make up two-thirds of Pakistan's budget expenditure.

10. On Europe's pensions problem.

Across the EU, 47 per cent of the bloc’s social protection expenditure is spent on old age and survivors’ benefits, ahead of 36.7 per cent spent on sickness and disability and 8.7 per cent on families and children. Even in the UK, where private provision plays a greater role, the country’s fiscal watchdog has forecast that spending on the state pension — the second-largest item in the government budget after health — will rise from almost 5 per cent of GDP to 7.7 per cent by the early 2070s. Italy has the EU’s highest pension costs at just over 15 per cent of GDP, according to statistics from the European Commission. France and Greece each spend over 14 per cent. In Germany, a third of all federal tax revenue will be spent plugging holes in the state pension system this year, according to an estimate by Munich economic think-tank Ifo... 

In France, the audit office estimated last year that the country’s pension deficit, currently around €1.7bn, could grow to €15bn by 2035 and balloon out to €30bn by 2045 if further reforms are not made. European countries have tried to tackle their surging pension costs since the 1990s, and have had some successes, with many lifting the state pension age from 65 to 67 or more. Italy has tied its pension age to life expectancy, while France has pegged annual pension increases to consumer price inflation rather than earnings. In some countries, spending on pensions as a percentage of GDP is set to fall in the long term as a result of such moves...

In most big European countries including Germany, France, Italy and Spain, the state provides the main earnings-related pension, paid for by contributions from current workers, which aims to replace a proportion of pre-retirement income. Such systems were modelled after the one created by Otto von Bismarck, who introduced national state pensions in 1889 to ward off surging socialism and strengthen loyalty to the authoritarian German monarchy... It paid up to 20 per cent of average salary to industrial workers when it became payable. It was designed to prevent destitution rather than facilitate a comfortable retirement. Other countries soon followed. In the UK, Prime Minister David Lloyd George ushered in old age pensions in 1909... A full UK state pension is currently close to a third of median earnings; private provision, usually through workplace schemes, is meant to provide additional security in retirement... Italy has one of Europe’s highest replacement rates, with pensions paying out close to 80 per cent of average earnings... Contribution rates, from workers and their employers, are correspondingly high at 33 per cent of earnings in Italy, 28 per cent in France and 19 per cent in Germany... That compares with an average of over 20 per cent in the UK — paid via national insurance — and just 11 per cent in the US.

11. Ramesh Chand argues for rationalising the PDS and moving to a nutrition security programme.

Between 2013-14 and 2025-26, India’s real per capita income (net national income at 2011-12 prices) increased by 78 per cent, from ₹68,572 to about ₹1.22 lakh... At the time of the NFSA’s enactment, around 22 per cent of the population lived below the poverty line. Both official estimates and independent studies now suggest that poverty had declined to around 5 per cent by 2022-23... In the early years of the NFSA, roughly one-third of the beneficiaries were poor and two-thirds were above the poverty line. By 2025-26, only about 10 per cent of those receiving free food grains were estimated to be below the poverty line while the remaining 90 per cent were non-poor... The latest UN report... estimates that the proportion of Indians unable to afford a healthy diet declined sharply from 59.8 per cent in 2017 to 35.5 per cent in 2025. In absolute terms, the number of such people fell from 759 million to 589 million. This indicates that about 170 million people crossed the affordability threshold for a healthy diet during this period as their purchasing power improved... The prevalence of undernourishment in India declined from 13 per cent in 2013-14 to 9.8 per cent during 2023-25, indicating progress but at a relatively slow pace.

12. The Fed under Kevin Warsh appears to be facing a credibility crisis as it grapples with rising inflation.

As Mr. Warsh spoke, longer dated Treasury yields rose sharply, with the 30-year bond closing in on its May peak of 5.2 percent. That was the highest level since 2007. The rise in the 30-year Treasury yield suggests some worry about Mr. Warsh’s ability to tackle inflation in the long run.

And this.

Long-term government borrowing costs shot higher as Mr. Warsh spoke, with the 30-year bond notching its largest one-day increase in more than a year. Trading around 5.22 percent, it is at the highest level since 2007. The 10-year Treasury yield, which serves as the benchmark for borrowing costs around the world, also rose alongside expectations about inflation over a longer time horizon.

13. FT has a long read describing the story of Situational Awareness, the $20 bn hedge fund of 24-year-old Leopold Aschenbrenner, which had racked up gains over 400 per cent on the back of massive leverage, and has now run into the wrong side of the AI sell-off. The fund sold its portfolio to Ken Griffin's Citadel in an almost distressed sale. Apart from being an alumnus of OpenAI, Aschenbrenner is also the husband of Avital Balwit, who now works as chief of staff to the CEO of Anthropic. 

What stands out in the entire article is the reluctance to call out the obvious contributor to Aschenbrenner's success: the strong likelihood of insider trading at a massive scale. It is hard to believe that the smart investors who were betting on Situational Awareness were betting on the expertise or competence of Leopold Aschenbrenner, and not on the insider information he possessed.  

14. Fascinating snippet on wealth creation in the equity markets.

Economic analyst Hendrik Bessembinder has shown that half of the net wealth creation in US stock markets over the last century flowed from just 46 public companies, out of a total of almost 30,000. Looking at his list of the greatest wealth creators, the knowledge companies dominate the top spots, and all the winners have high walls around them.