Does it matter that the entire infrastructure of wastewater collection and treatment in Kent, including tens of thousands of kilometres of sewers, is controlled by the Australian asset manager Macquarie? It should do, as these pipes are those of Southern Water, regularly criticised for noxious discharges into the sea. It was under Macquarie’s control that Thames Water was first attacked for underinvesting and for poisoning rivers with untreated sewage as it extracted billions in dividends while the company’s debt soared. In 2018, Ofwat, the UK industry regulator, lost patience and fined it a record £120m. But Macquarie had exited the company the previous year – leaving others to carry the can.
Macquarie is a face of what the academic Brett Christophers calls an “asset-manager society”, one where these firms increasingly own and control our most essential physical systems. They are paid fees to hold global housing and infrastructure assets worth $4tn – a sum that has grown 100-fold in 40 years. Financial wealth has zoomed and so has the proportion invested via asset managers. The business model squeezes profits out of the infrastructure they own by cutting costs to the bone and maximising the income the holdings generate.
The English water industry has given this model free rein, with catastrophic results for customers and the environment. Having taken all they can, investors have been trying to get the government to bail them out. Nationalising the industry would prevent the piggy bank being raided. This is a sensible solution, as assets that generate cash aren’t a drain on the public purse. But the Tories are ideologically against nationalisation. Labour doesn’t want to upset global capital. US investment firms own nearly 17% of English water.
In his book Our Lives in Their Portfolios, Prof Christophers visits south-east England to see quite “how fully asset-manager society has flowered”. In Kent, the US firm Blackstone owns rental properties; Canada’s PSP Investments owns rolling stock; Luxembourg’s Cube Infrastructure Managers has a broadband network. Between 2010 and 2015 more than 1,000 infrastructure deals were completed in the UK, more than in the next 10 European countries combined. Hospitals, farmland, green energy: no sector is safe. Swedish schoolteachers’ retirement savings built and now maintain 24 Scottish schools.
Often profits are privatised and losses socialised. Sussex police have three custodial suites under a 30-year PFI deal, and must shell out the remaining £150m to an asset manager, although only two of them are used. The experience is not uniformly bad, but the public is rarely enthused. Ben Elton, the comedian and actor, summed up the mood last week in a railway documentary: “We sold off British Rail because the Tories considered it a firm run badly by the UK government. They sold it so it could be run even more badly by rail companies owned by the Italians, German and French.”
It is a two-way street. Britain and the US are deeply implicated in this system, contributing 75% of the $56tn of global retirement savings. Some of this cash is from teachers and nurses, but most is from high earners. While Wolverhampton local government pensions prop up Brazilian real estate, the big gains from asset management are captured disproportionately by bankers, lawyers and consultants. Britain is being left in a ragged state while the public is being ripped-off by asset managers paid to deliver high financial but low social returns. That’s an unsustainable model that needs to be completely rethought.
