As this collection of headlines shows, the FT places the importance of Thames Water’s future at the top of its weekend agenda. The article, which I reported on yesterday, makes it clear that USS – the university pension scheme, is key to the ongoing financing of this major utility.
This is a much happier state of affairs than might seem to be the case. Although the short term valuation of Thames Water’s shares must be considerably below what they are marked at in USS’ valuation, the long-term prospects of this utility are based on a 15m captive customer base who want value for money as much as USS trustees and members.
In short, there should be an alliance of interests between a pension scheme and the assets it owns – both should be looking for long-term returns and stakeholder value to both customers and shareholders.
So, though I question whether USS has properly managed its shareholding so far, I see every possibility that it, along with BT pension , Ontario Municipal’s pension and other institutional shareholders, can turn this company around through the exercise of good governance and the establishment of new management under a better social contract.
As part of this, the price of water needs to go up, but extra burdens on consumers must be linked with improvements in the management of sewage and the leakage of pipes. The pension schemes can be a part of this contract.
In short, I see the challenge facing USS, BT , Ontario and others as one of being effective stewards of the asset they own.
This is an important aspect of the diversification of large pension funds into private markets and one I have read little about. If superfunds such as USS are to take 20% stakes in firms like Thames Water, they need to recognise they are no longer silent partners but crucial to the future of the assets they co-own.
Simon Pilcher , USS CIO, is paid a lot of money to manage a lot of money. But with that pay, comes responsibility.
What happens over the next few weeks to Thames Water is to a large degree down to the way that USS and others manage the asset. They must be integrally involved with negotiations with Government and its regulators. It must be a party to whatever solution happens going forward.
If it fails to step up to the challenge and just awaits a Government bail-out , it deserves to be treated brutally and for that brutal treatment to be the responsibility of USS and its investment team.
If it succeeds , creating a better long-term future for Thames Water, USS can rightly point to it using the power of its £90bn fund to make not just its money, but our utility – matter.