The brewing financial troubles at Thames Water, a utility in the UK intrigued me to explore the role and involvement of asset managers/owners in running businesses that are primarily engaged in providing public goods and services. The concentrated ownership of private sector corporates, especially in the Developed economies, in the hands of fund managers through active and passive funds is a well-known fact but their role in managing assets such as public infrastructure, energy, telecommunications and transportation has also increased manifold over the last two decades. Governments had shifted the responsibility of managing public assets to the private sector long ago but the trend of fund managers becoming owners is fairly recent. How that shift has planned out and who has benefited from it? Is the public (users of such assets) better-off due to the involvement of famous asset managers in managing hospitals, toll roads, airports, city parking, multi- family housing and water distribution.
To find answers to these questions, I started reading "Our Lives in Their Portfolios - Why Asset Managers Own the World" written by Brett Christophers. The author has carried out extensive research and has shared his analysis in an attempt to answer the key question - Who is actually benefiting from the ownership of social and public infrastructure? The answer is pretty clear to the author and he has directed his ire at asset managers (Brookfield, Macquarie, Blackstone, Morgan Stanley IP to name a few) in extracting excess returns from such investments while making the products/services more expensive and operating with a short-term horizon despite a long-term nature of such assets/projects. While the author's criticism is mostly justified, there are several key reasons why fund managers stepped-in to fill the gap left by the governments and public sector in infrastructure and social assets development.
The trend of investment by asset managers in infrastructure assets is not new. It started in the 1990s and 2000s. Western governments with growing debts began seeking out private investors to acquire ageing infrastructure from airports and railways to water pipes. Over the past decade assets under management in infrastructure funds have increased almost five-fold, to $1.3trn (The Economist). The top three are Australia’s Macquarie, Canada’s Brookfield and Global Infrastructure Partners (acquired by Black Rock in January this year).
The three key trends driving infrastructure demand are 1) Decarbonization – requiring investment in renewables, storage batteries and transmission lines, 2) Digitization – requiring assets such as data centers, fiber optic cables and 5G networks, and 3) Deglobalization – requiring development of local/regional transport infrastructure and factories.
The book is very informative and covers the topic with great details. Definitely a must read for the individuals curious to know more.
#infrastructure #investment #publicgoods #funds
