What Is a Quasi-Public Corporation?
Let me explain what a quasi-public corporation is: it's a company in the private sector that's supported by the government and has a public mandate to provide a specific service. You can think of examples like telegraph and telephone companies, oil and gas firms, water and electric light providers, and irrigation companies.
These corporations can be set up from scratch, start as government agencies that get privatized, or result from a large private company becoming partially nationalized. They're often called public service corporations as well.
Key Takeaways
- A quasi-public corporation is a private company backed by a government branch with a mandate to provide a service.
- In return for their services, they often get some partial funding from the state.
- Such a corporation must prioritize its government mandate over generating value and profit for shareholders.
- Don't view these as risk-free investments just because of their government ties.
How Quasi-Public Corporations Work
Similar to public-purpose entities like libraries or adult day centers, quasi-public corporations exist to benefit the public. These are private companies given a government-chartered mission, and in exchange, they usually receive some partial funding from the state.
They might include public companies with industrial or commercial roles, nationalized firms, or those with majority public shareholding. Many see them as political tools because they can sometimes operate with fewer restrictions and more cost-effectiveness than standard government institutions.
Important Note
Contrary to what you might think, employees of quasi-public corporations do not work for the government.
Government Funding
For those quasi-public corporations that get government funding, it comes as regular transfers to cover persistent losses, which are politely called negative operating surpluses.
These losses happen because they charge prices below average production costs as part of deliberate government economic and social policies; by convention, these are treated as subsidies on products.
Examples of a Quasi-Public Corporation
Take Sallie Mae Corp. as an example; it was founded to support student loan development. Another is Fannie Mae, or the Federal National Mortgage Association (FNMA).
Fannie Mae counts as quasi-public because it runs as an independent corporation not part of the government, yet it operates under a congressional charter to boost homeownership availability and affordability.
Special Considerations
It's common for shares of these corporations to trade on major stock exchanges, so you as an individual investor can get exposure to the company and any profits it makes.
But remember, while shares are sold publicly, creating value and profit for shareholders is secondary to fulfilling the public purpose. The operations must contribute to the comfort, convenience, or welfare of the general public in some way.
People often mistakenly assume quasi-public corporations are government branches, leading to perceptions of safety or risk-free investments in their equity and debt. This was clear in the lead-up to the 2008 financial crisis.
Debt securities from Fannie Mae and Freddie Mac stated they weren't government-guaranteed, but many investors treated them as if they were. When these entities faced bankruptcy, public outcry and investor pressure led to a U.S. government bailout. Essentially, the perception overrode the explicit terms.
