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PORTSIDE CULTURE

ASSET-MANAGER FIRMS ARE TAKING OVER THE SOCIAL INFRASTRUCTURE ON
WHICH WE ALL DEPEND  
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Adam Almeida
May 5, 2023
Jacobin
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_ This book looks at asset managers, the new capitalists that the
author says "increasingly own and control our most essential physical
systems and frameworks, providing the most basic means of social
functioning and reproduction.” _

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_Our Lives in Their Portfolios: Why Asset Managers Own the World_
Brett Christophers
Verso
ISBN: 9781839768996

Asset management is an emerging part of the global financial system
that has come to prominence since the great meltdown of 2008. Asset
managers invest money on behalf of institutional investors — such as
sovereign wealth funds, pension schemes, and insurance companies —
to generate enormous profits for themselves and their clients.

In an asset-manager society, firms like Blackstone, Brookfield, and
Macquarie act as the shadowy overseers of wealth funds that find a
home in the assets that sustain human life, such as housing, energy,
and transportation. The questions of how this came about, what the
implications are, and who the ultimate winners and losers might be are
all explored in brilliant clarity by Brett Christophers in _Our Lives
in Their Portfolios: How Asset Managers Own the World
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An Invisible String

When my sister-in-law told me that she had been offered a job in human
resources for the City of Mississauga, I was extremely happy for her.
She would be working for the municipal government of our Canadian
hometown, where she would enjoy security of employment, robust
benefits, and a healthy pension plan for when she retires. As I
recently discovered while reading _Our Lives in Their Portfolios_, I
had already been contributing to her retirement savings for years
through a complex and obscure labyrinth of global capital flows.

The pension plan that covers my sister-in-law is the Ontario Municipal
Employees Retirement System (OMERS), one of the largest public pension
plans in Canada. As an institutional investor, OMERS has assets under
management valued at Can$124 billion
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with most of its exposure in private equity, infrastructure, and real
estate.

One of the crown jewels of its portfolio is Thames Water, the private
utility company that supplies me with drinking water in north London
an ocean away. As OMERS is the largest shareholder in the company, the
ever-growing water rates
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that I pay ensure that my sister-in-law will one day enjoy her golden
years in retirement. Simultaneously, however, wastewater treatment
plants owned by Thames Water suffer from a lack of investment that
threatens to leak raw sewage
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into the rivers of the Cotswolds and the Chilterns.

An Asset-Manager Society

In _Our Lives_, Brett Christophers traces the burgeoning of an
asset-manager society that is responsible for financial arrangements
like the one illustrated above. Christophers is a professor at the
Institute for Housing and Urban Research at Uppsala University who has
previously written two books for Verso, _The New Enclosure
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and _Rentier Capitalism
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_Our Lives_ is a continuation of ideas and concepts first explored in
these books, where he tracked the economic conditions that gave rise
to a “rentier class” of proprietors who collect an income solely
by owning a scarce resource that can be monopolized. Christophers had
already noted the expansion of asset managers within the rentier
class, and his latest book shines a spotlight on their activities,
operations, and growing prominence since the 2008 financial crisis.

Asset management has come to dominate the financial sector in a
remarkably short period of time, and asset managers are now among the
most powerful institutions transforming the global economy. Despite
their profound extension into innumerable industries and geographies,
public awareness and recognition of these economic actors does not
align with the scale of their ability to shape modern society.

Christophers provides the reader with a helpful definition in the
introductory pages:

Asset managers are private financial firms that manage money on behalf
of investors, typically institutional — as opposed to household or
“retail” — investors, and in particular pension schemes and
insurance companies.

In other words, asset managers are essentially brokers who pair
enormous pools of wealth with assets to generate returns on
investment. In _Our Lives_, Christophers discusses the emergence of
what he calls an “asset-manager society: a society in which asset
managers increasingly own and control our most essential physical
systems and frameworks, providing the most basic means of social
functioning and reproduction.”

Christophers presents this development in contrast to what other
academics, most notably Benjamin Braun, have termed “asset manager
capitalism
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or the growing concentration of universal ownership of asset managers
in the largest corporations publicly listed on stock exchanges. While
the likes of BlackRock, Vanguard, and State Street dominate the S&P
500 and FTSE 100, Christophers sets his sights on the control of
“real” assets that take a physical form, such as apartment
buildings in Madrid, fiber-optic networks in Hawaii, or a subway line
in Seoul (all explored as case studies in _Our Lives_).
Owning the World

Christophers underscores the capture of “real” assets by asset
managers in contrast to financial assets, such as stocks, bonds, and
debt. The ones that asset managers most desire are those on which we
depend for social reproduction. The assets detailed in _Our Lives_
include housing, farmland, energy, transportation, telecoms, water,
and social infrastructure (like schools, hospitals, and prisons).

_Our Lives_ introduces us to the players who dominate asset-manager
society: Blackstone, Brookfield, and Macquarie. While Blackstone has
had a light shone on its activities
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over the past year, the names of these firms are still not as
well-known as they should be despite their undue influence over key
societal infrastructure.

Macquarie has its fingerprints all over the financial arrangement
noted above between my sister-in-law and me, as it led the consortium
that purchased Thames Water in 2006 before selling its final shares in
2017 to OMERS for an estimated £1.35 billion
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This transatlantic coincidence should not be too surprising, since, as
Christophers points out, the firm “now owns infrastructure on which
100 million people rely each day” around the world.

There is an important clarification to be made on the topic of
ownership when discussing asset management. Asset managers seldom own
“real” assets directly. In nearly all cases, investment funds that
are established and under the control of the asset manager own those
assets. In other words, this means Blackstone does not own the
apartment you live in, but rather owns and manages the fund that in
turn owns the apartment you live in.

This is important to note for a number of reasons, but principally to
understand the fundamental role the investment fund plays in the
industry. Money is committed by institutional investors such as
pension schemes and insurance companies to the investment fund, along
with large amounts of debt, to purchase an asset.

Investment funds typically hold only 1 to 5 percent of capital
committed by asset managers themselves. Despite the fact that they
have minimal “skin in the game,” asset managers recoup a
disproportionate amount of the financial gains made through the
investment vehicle. This is a result of the fee-generating model that
underpins the operations of asset managers.

Institutional investors that commit money for investment are charged a
myriad of fees to do so — the most noteworthy being management and
performance fees. Management fees are charged to use the services of
asset managers, and performance fees are only paid “at a certain
level of financial return.”

This means that even when investment funds have disastrous
performances, asset managers still make money. According to
Christophers, management fees account for roughly 60 percent of profit
in real-asset asset management.

Renting and Returns

Another major point that _Our Lives _highlights is the acquisition of
rent-generating assets in the portfolios of asset managers. This is
most obvious in the purchase of single- and multifamily homes where
tenants live, but we can also identify the acquisition of
infrastructural assets through the provision of concessions as
rent-generating.

These concessions are time-limited ownership arrangements where the
asset manager maintains control and collects any income generated
from, for example, a toll road or parking space. In certain instances,
the public body that grants the concession will also guarantee a set,
recurring income to the owner, regardless of how well the asset
performs.

The rental income realized by “real” asset ownership is typically
not to the direct benefit of asset managers. Many investment funds are
“closed-end,” which means that they have a predetermined lifespan.
As a result, all assets must be sold at the point of fund termination
— usually seven to twelve years. As those who are already acquainted
with asset managers in the housing sector will know, increased rental
rates are one of the most common factors
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associated with asset management.
However, their principal motivation for buying rent-generating assets
is the value they hold to future owners at the point of sale. Even if
Blackstone currently owns the building you live in — from student
accommodation in Leeds or Manchester
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mid-market apartments in Tokyo
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— the firm is not likely to remain your landlord for the long haul.
The ultimate goal of an asset-manager society is to derive the highest
possible return on investment in the shortest amount of time to the
primary benefit of the asset manager, with a new rentier filling the
space it leaves behind.

Socializing Risks, Privatizing Gain

_Our Lives_ is an impressive feat, delivering a clear and concise
study of a particularly complicated and increasingly important facet
of modern capitalist society. Christophers does what few other
economists are able to convincingly undertake in less than three
hundred pages. He has written a book on the creeping financialization
of our daily lives that an informed, generalist audience can
understand, and told it through engaging and relatable case studies.

Christophers most likely drew upon his professional background in
management consulting, where he worked at PricewaterhouseCoopers (PwC)
and Mercer for nearly a decade prior to completing his PhD. His
ability to provide precise and accurate information will help readers
who are probably implicated in the same web of financial arrangements
that connect me to my sister-in-law and millions of others along the
way.

Of particular interest was the book’s discussion of how the state
plays a role in de-risking public assets so as to shepherd in private
investment for the outsized benefit of asset managers. The tendency of
governments in the Global North to socialize the risk of building or
maintaining infrastructural assets while privatizing their profits is
deeply concerning in general. But this is especially so in the context
of renewable power generation, as the construction of such assets is
of existential importance in the face of climate and ecological crisis
— and they are expected to generate tremendous profits for decades
to come
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Understanding the active role that the state plays in bolstering an
asset-manager society adds necessary nuance to discussions of state
abandonment
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that dominate discourse on the Left. Readers will recognize the
inability of the state in many contexts to reproduce society: one
pertinent example is the failing of public health care systems across
the Global North, or the complete lack of such a system in the United
States.

There is an increasingly widespread belief that we are experiencing an
“organised abandonment
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by the state as a result of its absence. However, _Our Lives_
demonstrates that the state continues to play an essential role in
these most fundamental infrastructures that sustain human life —
while only doing so for the benefit of capitalist interests and not
the citizenry it serves.

Pushing Back

One of the most unsettling aspects of _Our Lives_ is the unseen and
undue influence of asset managers in transforming our built
environment. Christophers notes their growing ability to “frame and
facilitate the myriad ‘daily flows and rhythms’ that constitute
urban social life” through shaping housing and infrastructure
networks.

PULL: The development of an asset-manager society has grave
implications for the nature of our social relations and our ability to
reproduce society.

One glaring example is the purchase of long-term parking concessions
from the City of Chicago by Morgan Stanley Infrastructure Partners
(MSIP). Under the terms of the agreement, the city was liable to
compensate MSIP for any adverse event that prevented parking meters
from being used or the introduction of any new parking facilities that
diminished “the monopoly rights and market share of MSIP.”
This meant that the city was forced to limit the construction of bike
lanes and the efficiency of bus rapid-transit routes across Chicago,
all to protect the right of the asset manager to collect revenue. MSIP
sued the city in 2015 for $62 million due to a breach of the
noncompete clause after permitting “a parking garage just one block
from one of the concessioned lots.”

The development of an asset-manager society has grave implications for
the nature of our social relations and our ability to reproduce
society. _Our Lives_ clearly demonstrates that there are few winners
and many losers under this model of society, which sees the limitless
advance of financial institutions into the structures that sustain
human life.

Understanding the actions, operations, and developments of asset
managers is essential if we want to reverse their encroachment into
our quotidian lives and realize a future where we control the physical
world we occupy.

* Asset managers
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* investors
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* Finance Capital
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* investment funds
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