
Global Infrastructure Partners Gets Big Returns In Sleepy Sector - sajid
https://www.bloomberg.com/news/features/2017-02-16/global-infrastructure-partners-gets-big-returns-in-sleepy-sector
======
adanto6840
For those of you thinking, "I'd like to take a crack at running an airport" or
think you'd be able to do better, there's a game that just got through Steam
Greenlight and that will be releasing soon which will allow you to do exactly
that.

Obviously it's "dumbed down", but it still tries to stay realistic & uses a
'systems-based' logical approach for gameplay; the total operation is
basically just the sum of all the different inter-dependent systems and how
they relate to eachother, how failures cascade, etc...

[http://www.simairport.com/](http://www.simairport.com/)

Disclaimer: I'm involved in the project.

~~~
avar
Is it possible to go outside the bounds of what a typical international
airport looks like today? E.g. no security screenings so people can pretty
much just walk on the plane like it's a train station?

That would mean you don't need space for restaurants, or lots of space for
people to pool as they're waiting past security.

It would be very interesting to experiment with changes like that and see how
it would look.

Edit: There's now an entire discussion downthread about how airports did and
didn't look like before 9/11.

That misses the point of what I'm asking, which I'll rephrase. I'm asking as a
simulation game, how customizable is this? E.g. in in SimCity 2000 it
initially looks like you can do anything, but really you can't design
something that doesn't look & function either like an American suburb or car-
centric Los Angeles. There's no way to construct something that looks &
functions remotely like the city of Venice in SimCity.

Similarly in this game, can you really design your own airport that works
anyway you want from scratch? Or are you just placing all the pieces in your
typical international airport in different places on the board, while the NPCs
walk in some pre-determined route from parking, to checkin, to security etc.

There's nothing that appears in the very brief trailer that suggests that it
isn't highly constrained in the same way SimCity is. But I'd love to know if
that's really the case.

~~~
hueving
>That would mean you don't need space for restaurants

Restaurants existed in airports long before 9/11\. People arrive early because
missing flights costs you hundreds of dollars. Security adds maybe 20 mins to
the process.

~~~
rwmj
That just means that people should be able to turn up and get on any flight
without pre-booking.

I'm going to guess that pre-booking is some sort of way to maximize revenue or
minimize wasted empty seats.

~~~
closeparen
There's already a frustrating degree of uncertainty as to when (if ever)
showing up at the airport will actually yield a seat towards your destination.
Adding the uncertainty of other people's demand and even more highly variable
waits in line sounds like hell.

I'd much rather cope with the Christmas rush by booking months early than by
waiting at the airport for days.

~~~
rwmj
I can at least imagine a system where (a) planes aren't assigned to
destinations until the last minute and (b) more planes are made available at
the obvious times of the year (holidays and so on). That might yield a very
flexible turn-up-and-go system.

However I've never run an airport so I can also imagine that there are
important factors that I don't even know about that make this unworkable.

------
emilioolivares
The real story here is capital in the form of private equity. Engineering is a
commodity, it can be bought, there are tons of great engineers in the world.
Getting access to capital to take these big bets requires some serious clout,
influence, and connections that the average joe doesn't have. Check out the
background of ANY private equity firm, it's full of very wealthy people from
Ivy League schools (Skull & Bones anyone?).

These guys create a firm, pitch their friends to get a seed fund off the
ground and then start fundraising from larger institutions. They then hire
some real talent and they are off to the races. Not everyone makes it, but the
ones who do are featured as geniuses on Bloomberg and the Wall Street Journal.
Survivorship bias for sure. Most Hedge Funds and Private Equity firms don't do
well, similar to any start-up.

~~~
hkmurakami
What are the returns of the competitors' infrastructure funds compared to GIP?

If everyone (including GIP) has modest (much less than the historic 24% of
GIP) returns, then we might think the opportunity was simply about untapped
inefficiency, and that any team with the massive capital + reasonable human
talent would have had the same results as GIP in the past decade.

If GIP continues to outperform vs the competition even as the space gets
crowded, we could consider their human talent to be a differentiator.

If all the infrastructure funds are doing great, even in a world of high
competition, then again we can consider the access to capital and access to
the counterparty stakeholders to make the deal happen to be the
differentiator, not the operational or engineering talent of any firm.

Personally I'm willing to believe that operational experience at massive scale
is much rarer than simply "great engineering talent" at the individual
contributor level, but am open to be proven wrong.

------
digler999
> Outgoing baggage jumped out as a major trouble spot; Stanley went to
> investigate,

Does it really take an "engineer" to find a trouble-spot and fix it ? Why do
you need a billion-dollar fund to grab engineering talent to do what the
highly-paid leaders of, say, airports, are already _supposed to_ be doing ? If
they can't figure it out, isn't there a whole industry of consultancy firms
that send "analysts" through your organization to do the same thing?

If this sector is so profitable, will it cause the same crisis that
privatization of hospitals did to healthcare ? Say "Global Infrastructure
Partners" expands and "buys" JFK, ATL, LAX, just like private healthcare
bought all the hospitals. Now they can start jacking up their landing fees
(each year) until air travel becomes unaffordable. What's to stop them from
turning this into the ultimate regulatory capture ?

~~~
FabHK
Yes, that.

Actually, I find it obscene that governments that can borrow at basically 2%
per annum or less are not engaging in these projects, and instead leave 24%
returns on the table for the private sector.

Call me a Keynesian all you want, but yes - the austerity stance in the last
decade (after the GFC) (particularly in Europe, due to Germany, but also in
the US) was a huge mistake.

~~~
merpnderp
Because governments aren't set up to do things efficiently and can never
capture the 24% return. Going back to the 19th US where government ran and
backed enterprises were outperformed over and over sector by sector by private
enterprise. Not losing your job for bad investments is a bad incentive.

------
huac
> 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.”

Two sigma corresponds with a 95% confidence interval, while one sigma is a 68%
confidence interval which he is presumably referring to.

I don't want to detract too much from the work that these people did, which I
think is actually very cool, but it worries me that their head of engineering
can't discuss really simple statistics correctly...

Edit: words mean nothing, see replies

~~~
fiter
For whatever reason, the "Six Sigma" techniques/ideas aren't using "Two Sigma"
to refer to ±2σ, instead they're referring to the width of the band around the
mean.

[https://en.wikipedia.org/wiki/Six_Sigma#Sigma_levels](https://en.wikipedia.org/wiki/Six_Sigma#Sigma_levels)

~~~
huac
Yeah, and it's apparently also shifted down by 1.5 sigma.

~~~
leereeves
That's apparently based on Motorola's data regarding process drift.

> Motorola has determined, through years of process and data collection, that
> processes vary and drift over time – what they call the Long-Term Dynamic
> Mean Variation. This variation typically falls between 1.4 and 1.6.

[https://www.isixsigma.com/new-to-six-sigma/dmaic/15-sigma-
pr...](https://www.isixsigma.com/new-to-six-sigma/dmaic/15-sigma-process-
shift/)

------
L_Rahman
If you're interested in infrastructure or business backend improvements like
the ones described in the article but:

\- are at a smaller and more local scale that don't attract attention from the
likes of GIP \- the process improvements are around information flow between
applications instead of physical flow

I am really interested in talking to you whatever the domain may be.

An example I've learned of recently:

Garbage truck routing in NYC is grossly inefficient. The routing used to be
centralized under a single contractor with rumored tentacles into organized
crime. Due to changes in contracting regulations, NYC garbage collection is
now includes a mix of independent contractors. This results in multiple trucks
visiting the same street on the same night.

This is inefficient in the following ways: \- cost of garbage transportation
\- noise pollution \- localized pollution from truck emissions \- CO2
emissions from inefficient route planning

I'm fairly certain efficient routing for this is a solved computational /
information systems problem and the source of the issue is a lack of
coordination. I'm trying to dig in with the Department of Sanitation to see
who the different players are.

~~~
nunez
Sure. I'm currently interested in discovering inefficiencies in airline
revenue management. My hypothesis is that a non-trivial amount of the spend
that airlines make is inefficient and based on factors that aren't as relevant
today as they were 30 years ago during the proliferation of global
distribution and revenue management systems.

i want to see an airline that is run by software engineers with aviation
experience that rolls its own GDS and revenue management system; one that can
scale well beyond its years and can operate on clusters of cheap compute.

my hypothesis is that current airline operations are band-aids on top of
protocols and runbooks that were developed around the initiation of the jet
age, and fear and fearfully low margins has held back massive amounts of
innovation that keep prices higher than they should be.

(and yes, i understand that aircraft are expensive to buy and maintain)

~~~
emmanuel_1234
Ha, I used to work for a large, Asian airline. They had that cool system used
to calculate the pricing of ticket in real-time.

No one really knew how it worked, it was built 20 years ago, and no one was
allowed near it for fear of breaking it. Therefore, instead of tuning the
algorithm, the analyst added their own (mostly arbitrary) rules on top of the
system's calculation.

It reminded me of that conversation in Asimov's Foundation, where some guy
goes to some planet and is afraid to see everyone using technology, having
lost all the knowledge of how it actually works and how to maintain it,
therefore seeing it as some kind of magic.

This was in 2015.

~~~
nunez
Right. Airlines are extremely ripe for disruption. Much of their operations
are outdated and inefficient for today's consumer. When was the last time you
saw an airline run a massive social media campaign?

To be fair, airlines wouldn't exist without governmental intervention
(aircraft and airport usage is expensive, but the market wants rock-bottom
pricing), so this makes innovation tricky. Which is exactly why I'm so
interested in this space.

------
siscia
Great story, but how do you get into this kind of "deal"?

I believe that most engineer would be able to come up with a reasonable way to
manage an airport, maybe with more dumps that our heroes, but still I believe
that most of us will be able to dig themselves out of the problem.

But then, how do you get into it?

You need tons of money and wealthy/powerful people that trust you, how do you
get that trust?

~~~
hibikir
When we fix software, we know that full rewrites are bad ideas, and that the
way to success is to make easy changes until finally you end up with a better
product. This is true because failing, for any amount of time, is a terrible
outcome. However, when it comes to moving upward for bigger opportunities, the
opposite is true: Little is gained by very slow grinding.

Wondering how to get all wealthy people to trust you is the wrong question:
What you want is ONE wealthy person to trust you. 300 failed pitches don't
matter. You just want to succeed once.

Therefore, my strategy is to aim as high as you can, be ok with a bunch of
failures, and once you have success, consider whether you can use it to aim
even higher, now that you have established a higher baseline. It's better to
have one resounding success an 50 failures at convincing people that never
failing, but aiming way too low.

~~~
siscia
That is a great point!

I do agree that shooting for the stars is the way to go, but I still find it
difficult.

------
mifeng
In 2009 and 2010, I worked for a similar private equity fund that also raised
a billion dollars to invest into infrastructure and real assets.

A few random things I learned:

* While a billion dollars may seem like a lot of money, it's actually fairly small in the infrastructure world where you are building massive projects like airports and power plants.

* For that reason, our fund focused on higher-risk, smaller projects in the developing world, which made it a tough sell to the cautious pension and endowment type investors who invest in infra.

* The secret to doing well is deal access. We were always envious of GIP because they had an incredible network.

~~~
hkmurakami
Guess it's always about dealflow, be it PE or VC.

------
lacampbell
My biggest takeaway from this is - people skilled in industrial processes
aren't already in very high positions in Airports!?

~~~
snarf21
I think the bigger takeaway is that at a lot of big companies, the processes
and management is horrible but it still makes a _ton_ of money. These guys buy
things that aren't optimized and squeeze all that money out. I think the most
interesting thing would be to look back at one of these investments 5 or 10
years after they exit and watch the improvements slip away and the companies
end up in trouble.

I think this is why people are dislike big government (me included, but
necessary for some critical things) because there is no incentive to optimize.
Quite actually, that is punished. Don't spend all your money one year and your
budget gets slashed even though you may need that in a few years to upgrade
equipment. The more layers of organization you add, the more managers you have
who see their job as self-preservation. It looks like these guys run very very
flat.

~~~
croon
Well, less government leads to privatization of crucial infrastructure
(airports, hospitals, banks, etc). Which still siphon government money, only
now that money doesn't go to public good or government employees, but to
private coffers, with no need to compete (regardless of "free market" hurr
durr) since it's infrastructure and can not be allowed to fail.

That government can be inefficient is an efficiency problem.

That private actors basically "steal" taxpayer money is a lobby/regulatory
problem.

Government does have some blame for the former, but you can't simultaneously
regulate wall street (for example) and still blame the government for being in
bed with them.

------
danielvf
Quote: 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.”

Is that really what two sigma performance means? That sounds more like one
sigma worth of failures.

~~~
kinkrtyavimoodh
The sigma level in industry traditionally refers to the 'bandwidth', not the
distance from the mean, so what you are thinking as 1 sigma is actually 2
sigma.

[https://en.wikipedia.org/wiki/Six_Sigma](https://en.wikipedia.org/wiki/Six_Sigma)

~~~
danielvf
Thanks!

------
cableshaft
> What Happens When Two Bankers and an Engineer Get a Billion Dollars?

To quote Willy Wonka, "They lived happily ever after."

~~~
DonHopkins
Pfff. I'm working on my second billion!

I gave up on my first...

------
dharma1
Surprisingly enjoyable article. Would love to have a crack at designing ways
to have a better airport experience - can't say Gatwick feels like a great
product yet

------
spitfire
Now I want to know what that 1930's airfield optimization book is....

I bet graycat knows, care to chime in? Anyone else have a guess?

------
EternalData
One of the things I think this story highlights is just how much gain there
can be in looking at unsexy things that nobody cares about but everybody
needs. I know quite a few startups that are really good at doing that -- no
noise, but they're quietly humming away at essential problems that sneak under
the surface.

~~~
bluetwo
I think the best startups look to solve a non-it problem, and I think there
are still a lot of them out there.

------
locusm
Looks like Theme Park from Bullfrog!

------
rajacombinator
Crony capitalism at its finest.

