Beware the angry masses

As prices rise for essential services, infrastructure investors should prepare for some unwelcome attention.

“Capitalism is Crisis” is one of the banners prominently displayed at the protesters’ tent village surrounding part of London’s St Paul’s Cathedral. It’s a sentiment hard to disagree with at a time when questions marks over the future of the Eurozone threaten to apply the handbrake to an already slowing global economy.  

Asking the protesters for their own solution to the world’s woes might be futile (and unfair, since professional politicians appear not to have one). It would also miss the point. While those gathered undoubtedly have specific grievances, what unites them is a sense that the “system” has failed society at large. It’s a protest born from a brooding sense that the current order of things is inherently unfair. 

Against this backdrop of simmering discontent, would you want to be the private infrastructure investor called upon to defend price rises introduced by assets that it owns – or at least has a stake in – for certain essential services such as water or electricity? Or might you fear that perfectly rational arguments, to do with such things as the cost of replacing archaic existing infrastructure or the need to recognise the reality of finite natural resources, might fall on deaf ears? 

Surely, though, in making such arguments you would expect to attract government support? After all, we’re not alone in having made the indisputable point that the involvement of private capital is required on a substantial scale in order to help address the world’s gargantuan infrastructure investment need. Should politicians not acknowledge this reliance by standing shoulder-to-shoulder with infrastructure investors in the court of public opinion as the rotten tomatoes fly from the public gallery, patiently explaining the logic behind, let’s say, soaring gas bills? 

It would be advisable not to raise hopes too high. Besieged politicians, so often the focus of public anger, might all too easily turn a blind eye when the accusing finger points elsewhere. They may even jump on the opposition bandwagon, perhaps joining in with the jeers and catcalls…or worse, take action to slash existing incentives or bring in punitive new regulation. 

We’ve already seen, in a number of European countries, how regulatory regimes pertaining to renewable energy have proved less sacrosanct than had been envisaged at the point when investments were first made. Already, risk committees are having to widen their horizons and assess what the impact might be on pricing and on return expectations. They should prepare for their lives to be made even more complex in the months and years ahead. 

The possibility of being on the wrong end of public opinion in such volatile times was recently described by veteran investor Thomas Putter as “social dynamite”. As an aside, Putter knows something about the subject, having been chairman of German private equity association BVK in 2005 when the chairman of the ruling SPD party, Franz Muentefering, compared private equity investors to “swarms of locusts”. Putter’s defence of the asset class was robust. Similar robustness may be needed in defence of the infrastructure asset class. Anyone care to volunteer? 
*To read his thoughts on “social dynamite” and other issues, make sure you check out the upcoming December/January issue of Infrastructure Investor, which will include a keynote interview with Thomas Putter