Our Lives in Their Portfolios — owners in the shadows

“What we do is behind the scenes. Nobody knows we’re there.” The speaker was Bruce Flatt, chief executive of Brookfield Asset Management, one of the big three global managers of real (as distinct from purely financial) assets.

It’s a good line but it’s not quite true.

There is a well-established academic and media literature on the subject, painstakingly marshalled in Brett Christophers’ new book to which the quotation from Flatt forms the epigraph.

Christophers’ aim is to ensure that people know about real asset management and why it matters. He mainly succeeds.

The nub of his argument is that as a result of privatisation and the financial crisis in the Global North, the ownership and operation of housing, infrastructure and other social assets have moved behind closed doors. Opaque new owners — Macquarie and Blackstone are the other members of the big three — bring in traditional asset managers, pension funds, insurance companies, high net worth individuals and sovereign wealth funds as co-investors.

Using the private equity “carried interest, two and 20” business model, they take a management fee of 1 to 2 per cent of committed capital and a 20 per cent cut of profits once a hurdle has been cleared. They have created what Christophers calls the “asset manager society”, exerting powerful control over socially important sectors and making off like bandits. The scale is astonishing. Macquarie of Australia owns infrastructure on which more than 100mn people rely each day and asset managers collectively own global housing and infrastructure assets worth more than $4tn.

It has been achieved by buying up distressed assets and persuading the public sector to de-risk investments through concessions, guarantees and other forms of protection. Safely cocooned, the managers then leverage the deal, put up prices, cut costs and trim services before opportunistically exiting. It’s a short-term solution to a long-term problem, damaging customers, employees and suppliers. Christophers extends that argument by also citing the financial risks to government and the constraints on public policy.

You do not have to share the author’s predilections to be shocked by his diagnosis

The first half of Our Lives in Their Portfolios is a textbook explanation of the industry. It is logical, patient and well evidenced, largely from secondary sources. It would have benefited from interviews with those directly involved and, in the absence of this colour, we are left with a book that at times reads like a university lecture, albeit a very good one.

Indeed, Christophers is a professor at Uppsala University in Sweden. One of his previous books won a prize for writing in the Marxist tradition and it’s clear where his sympathies lie. He name-checks Jeremy Corbyn and Bernie Sanders, holds neoliberalism to account and would restore the role of the public sector. It’s a polemic focused heavily on the case for the prosecution and a more balanced account would have considered some of alternative asset management’s successes alongside its egregious failures.

But you do not have to share the author’s predilections to be shocked by his diagnosis, particularly in the second half when the colourful examples mount up. Guarantees to investors in the municipal waterworks of Bayonne in New Jersey led to rates leaping 13.25 per cent in a single year and an internal rate of return of 36 per cent for the asset manager. The UK’s Private Finance Initiative — a public procurement programme launched by the Tories and later enthusiastically expanded by New Labour — gave birth to absurd examples such as Sussex Police paying for three custodial suites under a 30-year PFI contract and using only two. Long-term parking concessions led to the City of Chicago paying investors $61mn for parking by disabled motorists and for street closures. In 2016-17, Macquarie-owned Thames Water missed its regulator’s leakage targets by 47mn litres a day through under-investment yet paid £239mn of dividends to shareholders. Housing, hospitals, schools, farmland, green energy: no sector is safe.

The author’s writing is at its best when his passion comes through, stripping away the spin of an industry that likes to portray itself as benefiting teachers, nurses and firefighters but which disproportionately enriches itself. “Terrific and tenacious salesmen and women the champions of asset-manager society might be,” writes Christophers. “But, in the final reckoning, their product is snake oil, and their utopia a pure moonshine.” And, in the end, it is hard not to share his rage.

Nobody knows we’re there? They do now.

Our Lives in Their Portfolios: Why Asset Managers Own the World by Brett Christophers, Verso £20, 320 pages

Philip Augar is co-author with Keely Winstone of ‘Agent Twister: John Stonehouse and the Scandal That Gripped the Nation’

Join our online book group on Facebook at FT Books Café