Buzzword from Berlin: ‘Engagement’

Last week, we wrote an editorial titled “Regulation, regulation, regulation” – this week’s could have easily been named “Engagement, engagement, engagement”.

If you’re looking for a buzzword that captures the first day of our Global Summit, taking place in Berlin from 20-22 March, that would be it. Attendees are (finally?) waking up to the heightened importance – nay, the need – of communicating the benefits of private ownership not just to regulators and governments, but to the end-users of the assets they invest in.

That need was evident from the event’s get-go, when Martin Stanley, chairman of Macquarie Infrastructure and Real Assets, our opening keynote, stressed the industry needs to do a much better job of communicating the benefits of private ownership in the face of populism and the threat of nationalisation in countries like the UK.

And it was there at the end, when our conference chairman, the excellent Thomas Putter, chairman and chief executive of Ancora Finance Group, gently chided an earlier, regulation-focused panel for, as he put it, “missing the point”.

“Historically, industry has always talked to government and made the case regarding balance sheet and investment benefits [of private ownership] – we never addressed the benefit to the consumer. When something goes wrong, like with Carillion [going bankrupt], that’s when the man on the street gets really angry. In today’s populist world, that’s a real dangerous thing,” he argued.

It’s even more dangerous considering that many of those consumers are savvy social media users, able to generate a tweetstorm in no time. That means GPs, as one participant put it, “need to get a grip on their social responsibilities”, particularly because we still live in a world where citizens regard infrastructure as a right, as Putter aptly put it.

That increased engagement, necessary as it may be, will, admittedly, not be easy. Firstly, because it will force industry to move out of its comfort zone and secondly because it has to overcome increasingly entrenched popular perceptions of general financial services villainy.

But engage the industry must, and there are good reasons to do so. The two most important are the overwhelming benefits (poorly communicated as they may be) that private ownership and management bring to the vast majority of assets and consumers; and also, as Putter highlighted, because there is a much higher level of accountability in the private versus public sector.

The latter may, again, be contrary to popular perception. Anyone who has followed the very public flogging PFI has been getting in the UK will surely not have missed the irony that its proponents have a breadth of carefully audited – though often misinterpreted – information available to them with a level of detail you would strive to find in comparable public projects.

The hardest part of this heightened consumer engagement, however, will come when the inevitable tension between financial gain and consumer loss plays out. Case in point: how investors, in some cases, might actually benefit from situations – like higher inflation – that put pressure on ordinary citizens’ wallets.

“We believe that our cashflows will increase by about 80 percent of what inflation goes up. In other words, what you will earn over time will also rise with inflation,”  JPMorgan Asset Management’s Anton Pil, managing partner for the firm’s $130 billion global alternatives business, told us last year when we asked how JPMorgan’s infrastructure portfolio of mostly regulated and contracted assets would fare in a high-inflation scenario.

Now try telling Joe-customer how that’s also a good thing for him…

The prize, though, is worth those difficult conversations, particularly for anyone wanting to remain a presence in the asset class. As QIC Global Infrastructure co-founder Matina Papathanasiou put it to us in our February keynote interview: “We are long-term owners of privileged assets, so you need to maintain your social licence to operate and be good stewards of those assets. That’s a different mindset.”