How patient is patient capital?

We’re told pension funds  have long investment horizons so you’d expect those that invest in infrastructure to buy and hold investments to provide income for current and future generations of pensioners. This is what is called “patient capital” and it’s why Rishi Sunak and Boris Johnson called for a pensions big bang to bounce Britain back after the pandemic.

But it appears that it doesn’t always work like that, not when you have asset managers in the way.

In an opinion piece in Sunday’s FT, Brett Christophers explains  that the majority of infrastructure funds are “closed end” meaning that assets have to be sold within a certain number of years because such funds wind-up on closure.

On the one hand, infrastructure assets, such as real estate, are differentiated from other assets in which the private sector invests precisely by their long-term nature. But on the other hand, the preponderance of closed-end funds encourages short-termism and disincentivises capital spending. Why invest for a future you will not see or profit from?

Open-ended funds are apparently behaving no better.

The managers of open-end funds are no less incentivised by performance fees than the managers of closed-end funds. And to the extent that fund performance is driven by rapid asset disposals — which research indicates is clearly the case — the former will be no less focused on sale than the latter.

Christopher concludes

So much for investing in infrastructure for the long term.

This is not a question that a consumer can answer, it is not one for employers buying into workplace pensions, this is a question for trustees and their advisers who have responsibility for the investment of other people (our) money.

The impact of bad management

Lady Lucy moored in the Hurley Mill Pond

You will notice that around my boat are what appear to be soap suds, these are the tell tale signs of unclean water. This  picture was taken in 2017.

At that time , the water in the River Thames was under the private management of Macqurie, an Australian infrastructure investor into whose funds pension schemes invest.

Under Macquarie’s control from 2006, Thames Water was repeatedly attacked for underinvesting and for the resultant water and sewage leaks. In 2018, Ofwat, the UK industry regulator, lost patience and fined it a record £120mn.

But Macquarie had no need to worry. Having sold its final shares in Thames the previous year, it, as one commentator put it, “had gone, leaving others to take its hit”.

If we think that holding infrastructure , like the sewage system around the Thames – has a positive impact, we have to have ways to ensure that firms like Macquarie act as stewards ,not speculators.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to How patient is patient capital?

  1. Con Keating says:

    It is interesting that Thames Water is one of USS’s ‘crown jewels’ – they own approximately 20% of it.

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