Long-term infrastructure investors need to engage with the public and do much more to build trust in the value of their capital, said Brett Himbury, chief executive of IFM Investors, the global infrastructure manager, owned by 27 leading pension funds with $120 billion AUM.
Speaking at the Fiduciary Investors Symposium at Cambridge University in the United Kingdom, Himbury urged global pension funds and asset managers to better sell their brand of long-term finance as a strong and sustainable capital source. Long-term pension capital is different from government and bank finance and can work to improve beneficiaries’ lives, and the world we all live in, he said. Pension capital represents “workers capital” with an emphasis on “lease not sell” and investing rather than taking “the guts out” of an asset’s costs. Yet many people are sceptical and distrustful of investors. “The public are sceptical of our real motives,” he warned.
Part of the problem is a wider mistrust of institutions, be they financial, government or religious. And the implication for pension funds is worrying. Not only is it leading to fewer long-term investment opportunities to match fast-growing pension funds long-term assets. It is also leading to growing calls for renationalization with the potential to crimp opportunities for infrastructure investors going into the future.
Asset managers need to change too, said Himbury. He urged more asset managers to develop a clear purpose, drawing up guidelines on who they serve and what they are trying to achieve. This should include clearly demonstrating where they have reduced greenhouse emissions, or enhanced governance. The investment landscape poses an opportunity for asset managers to adjust their offering to think and act much more on asset owner’s behalf, he said. Pension funds should also increasingly put pressure on their managers to think about the long-term and demand clarity and alignment. Asset managers need to be sure “who they are serving and to what end” and how their “culture is aligned to meet the needs of those they serve,” he said.
Himbury also called on infrastructure investors to focus on the customers using those infrastructure assets. He said a long-term customer focus should replace today’s prevalent short-term, shareholder focus. “If you focus on your customer, and do so in the long-term, you will create long-term value.” Often investors get all the return at the expense of the customer in an approach that breeds conflict. Witness the United Kingdom’s water utilities where shareholders have been rewarded but water customers and users are burdened with increasingly high utility bills. More equality between investor and customer demands long-term investment, more revenue optimisation and conservative, rather than aggressive gearing, he said.