What is acceptable practice for asset managers in 2019?

“When you’ve got the chair of the Australian Competition and Consumer Commission reported as saying that privatisation has damaged the Australian economy, the Australian Energy Regulator handing down determinations reducing the total amount that transmission network service providers can recover from consumers, and, in the UK, Ofwat delivering strongly pro-consumer determinations and handing out record penalties for serious service failure, you’d have to say ‘yes’, infrastructure investors have been dining very well indeed on regulated monopolies.”

This quote is from Bill Watson, chief executive of Australian superannuation fund First Super. It’s part of his contribution for what we hope will be the next instalment in our Big Debate series (click HERE and HERE for the first two): are infrastructure investors reaping excessive profits from regulated assets?

We say hope because – at the moment and despite our best efforts – we have been unable to secure any participant willing to argue that the profits investors have been reaping from these assets are, in fact, entirely appropriate (we’ve been trying since May). Watson, as you can probably tell, is on the other side of the argument, so if you’d like to take part in countering him, email us HERE for a full list of questions.

At this point, some of you might be looking at our Big Debate question and thinking it’s not a very good one. After all, how, exactly, do you define ‘excessive’ profits? Who gets to make that determination? Finally, does the question even matter, if there’s nothing wrong from a legal and regulatory standpoint with the profits reaped to date?

All of which are fair objections. Unfortunately, they’re also rather meaningless. That’s because, from Australia to the UK, a chorus of complaints from consumers, corporate customers and regulators are cementing the perception that regulated asset owners are, to borrow Watson’s metaphor, dining out excessively at their expense. So far, the industry has been unable to effectively counter that perception.

Here’s a taste of recent broadsides fired at it. Last week, John Sharp, the transport minister responsible for privatising Australia’s airports in the late 1990s, said the light-touch regulation put in place was inadequate, and is now jeopardising consumers.

“It was a mistake,” he told The Australian Financial Review. “They [airport owners] are blatantly profiteering.” Important caveat: Sharp is now a board director at Australia’s Regional Express Airlines, so his comments are certainly not disinterested.

That’s just the latest from Down Under (for a litany of other complaints, click HERE).

Head north to the UK, and the wrangle between industry and regulators continues apace. The latest development saw a cadre of blue-chip investors complain to the Treasury in October that water regulator Ofwat is getting increasingly “politicised”. That, of course, follows Ofwat’s rejection of 14 of the 17 spending plans presented to it by water companies. Not to mention Ofwat chair and former Anglian Water boss Jonson Cox’s comments to The Sunday Times last August:

“This industry still doesn’t accept that customers should be at the heart of this business. We are unwinding one of the last bits of the pre-crash bonanza: buying an asset and gearing it up.”

In a way, there’s a tremendous sense of déjà vu to these tussles, and we would sympathise with readers pointing out that we’ve been here before, and will almost certainly be here again. That’s just the nature of infrastructure investing.

On the other hand, what constitutes acceptable practice in 2019 is being challenged like never before, taking in everything from whether capitalism is compatible with averting climate change, to workplace diversity and the gender pay gap.

It is in that context that these recurrent issues should be reframed. Essentially, for how long can a customer-centric industry afford to be perceived as doing wrong by its customers?

We’d love to have that debate.

Write to the author at bruno.a@peimedia.com