How would our readers within the infrastructure fund community like to be seen? Quite possibly as safe and responsible guardians of essential assets and as long-term generators of wealth for their investors.
Probably not, however, as “sharks” who “made a killing” and “predators” who “destroyed” a firm “caring for 31,000 old people”. If you didn’t know already, the descriptions in the previous sentence were applied to US alternative assets investor The Blackstone Group by London newspaper the Daily Mail due to its alleged role in creating the conditions for the eventual sorry plight of UK care home operator Southern Cross.
The private equity asset class has been around long enough to know that, every so often, extreme PR challenges like this will rear up at them from out of the blue. There was a time when it was relatively unprepared to deal with these challenges. Industry associations, set up to defend the interests of the asset class, were sometimes guilty of being a step or two behind the game – slow to respond to the media charges and then wishy-washy and unconvincing in their proclamations.
But times have changed. The British Venture Capital Association issued a swift and carefully targeted riposte to the media coverage of Southern Cross, challenging the view that the firm’s troubles should be attributed to Blackstone and highlighting the good work done by other investors in the sector. Let’s be honest, forming a persuasive defence against the accusation that elderly care home residents have been ill-treated by hard-headed financiers is a tough mandate. But subsequent media reports of the affair did at least appear to dwell a little more on the counter-arguments.
In a similar fight, how would the infrastructure asset class fare? Does the lack of an industry association mean it may as well throw in the towel? At the 2010 version of our annual Berlin forum, there was talk behind the scenes of such an association being formed, but nothing has since materialised. While there are national – and even one or two supra-national – bodies in the PPP/project finance field, there is no organisation encompassing the interests of all providers of private capital for infrastructure.
This is worrying, since ownership of infrastructure assets is potentially highly sensitive. Care homes are the exception rather than the rule in private equity – rarely does private equity ownership have such a powerful social impact. But, through their management (whether full or partial) of ports, airports, bridges and the like, infrastructure funds have responsibility for ensuring safe passage of countless multitudes of passengers every day.
Moreover, there have already been some examples of infrastructure investors receiving criticism. In the UK, for example, the owners of project finance initiative (PFI) assets have been under fire since the year began for extracting what some say are excessive profits from the nation’s schools and hospitals, with pressure mounting on them to forfeit some of their gains from these assets.
But as yet, infrastructure funds have not – thank heaven – had to deal with the repercussions of a major airport security failure, a collapsing bridge or an exploding gas pipeline. In such an event, it’s not hard to imagine newspaper journalists digging furiously to find the slightest evidence of culpability on the part of the owner (especially anything that points towards said owner having put financial gain ahead of public safety).
Scary to contemplate, and let’s hope it stays in the realm of nightmare fantasy. But if it does become reality, let’s hope the infrastructure asset class has by then got itself sufficiently organised to offer a coherent response.