Asset managers are key figures in your life, although you may not be aware of it. These investment firms are mostly recognised for their ownership of financial assets such as stocks and bonds. But as well as owning financial assets, in recent decades they have been buying huge volumes of so-called “real assets”, which in many cases represent necessities of everyday life such as housing, schools, care homes, roads, energy systems, farmland and water-supply networks.
Thus, the regular payments to asset owners that we make to stay alive and thrive – such as for shelter, electricity, water or food – increasingly end up in part or in full in the hands of asset managers. Those managers decide both how much we pay, and what condition the apartment, care home or pipes that supply our drinking water are in.
Observers have noted isolated, individual examples of this phenomenon. However, the dots have not been joined. The common thread that weaves together such seemingly disparate examples as embattled Danish apartment tenants, beleaguered US care-home residents and indignant UK water rate-payers has been ownership – that is, asset-manager ownership.
Today, such is the breadth and depth of this phenomenon that the lives of few people anywhere in the world are untouched by asset managers’ tentacles. And some of us, especially in the global north, are thoroughly entangled: we effectively live in an asset-manager society. Consider that just one asset manager, Australia’s Macquarie, owns infrastructure internationally on which more than 100 million people rely every single day.
If their control of essential infrastructure gives asset managers direct power over the conditions and costs of our daily lives, they also enjoy a more indirect form of power. For a variety of reasons, including the growing amount of capital at their command (now in excess of $100tn), leading asset managers today possess formidable power to shape government policy, not least regarding the types of real assets that they themselves increasingly control. Whereas in the past governments leaned heavily on banks for advice on financial matters (but not only those), now it is principally asset managers that have their ear.
Consider two striking examples from the US. Amid the detritus of the 2008–10 financial crisis, a key concern was housing finance. What was the Obama administration to do about the millions of mortgaged homeowners who were in negative equity and facing foreclosure? The treasury team that advised Obama hired multiple recruits from the asset manager Blackstone. The outcome? Policies that not only failed the foreclosed, but simultaneously enabled Blackstone itself to cheaply assemble a vast, profitable portfolio of rental homes, largely out of those properties that were foreclosed upon.
Meanwhile, since Joe Biden became president, a more pressing concern has been climate finance. How should the US finance the infrastructure investment required for climate mitigation and adaptation? In this case the key policymaking entity has been the National Economic Council. Its director until February this year? The ex-head of “sustainable investing” at BlackRock. And the outcome? A policy based on government subsidisation of investment in clean-energy infrastructure by private-sector actors such as BlackRock itself.
All this raises a crucial question. If asset managers really do possess such power over our daily lives via the infrastructure that we depend intimately upon, why have observers not been more aware of the fact? Bruce Flatt, the head of Brookfield Asset Management, one of the leading players in real-asset investment, has provided perhaps the best explanation. “What we do is behind the scenes,” he told the Financial Times. “Nobody knows we’re there.”
It’s high time these firms, and their power, were brought into the light.
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