Sections

Diary of an Investor: War stories

Last month I joined our co-operation partners at PensionKøbenhavn in Copenhagen for a private round table of institutional investors discussing real assets. Katrine, the CIO of PensionKøbenhavn, and I both gave presentations about our investments in property debt and infrastructure co-investments. 

Katrine outlined the investments we have in a wind farm off the Danish coast. I then presented our Dutch gas pipeline investment and explained how we have been working with PensionKøbenhavn since 2012 in areas like manager research and corporate governance, as well as in real assets and infrastructure.

The round table was an eye-opener. One of the sessions was entitled War Stories. A Scandinavian investor told us about how an NGO had made life difficult for her fund because of an investment in Brazilian farmland. The criticism was unfair and probably motivated because the fund could not disclose the precise coordinates of the land for reasons of commercial sensitivity, which annoyed the NGO.

A fund manager told a tale about an investment in a Latin American wind farm. The project was supposed to replace an oil-burning power plant that fed a remote copper mine. Despite good environmental credentials, the project was beset with problems ranging from turbine supply issues to strikes at the mine, which held up construction. ‘As if that wasn’t enough,’ the manager continued, ‘the turbines were fitted incorrectly by the contractors, which affects the supplier guarantees and the on-going saleability of the project.’

Another story involved component issues with photovoltaic cells: when these prove faulty, suppliers can game the contract by re-supplying the minimum required to meet the lower level of estimated power generation, when the investors make IRR calculations based on a median calculation. 

And one North American fund manager warned about the governance burden. Not only do investors need to occupy board seats and travel regularly to meetings, they may also be called upon to fight fires when things go wrong. This individual had to travel across the world to sort out problems resulting from an actual fire that interrupted the supply of electricity from the grid his fund was invested in.

Many people think real assets are a natural inflation hedge and a good proxy for defined benefit liabilities. Indeed, many managers market funds as such.

‘Don’t think real assets are necessarily a good hedge for inflation or liabilities!’ one leading academic declared. ‘Over the long term, perhaps, but over shorter periods this certainly cannot be proved.’

Katrine and I compared notes over coffee in one of the breaks. ‘The obvious solution is to devise a bespoke real assets programme and to be a true long-term investor and to pay your staff a fortune,’ she said. ‘Easier said than done!’ I replied.

Pieter Mullen is investment director at Wasserdicht Pension Funds

Have your say

You must sign in to make a comment

IPE QUEST

Your first step in manager selection...

IPE Quest is a manager search facility that connects institutional investors and asset managers.

  • DS-2382

    Closing date: 2017-12-14.

  • QN-2383

    Asset class: Residential Property.
    Asset region: Ireland.
    Size: EUR 10m.
    Closing date: 2017-12-18.

  • QN-2384

    Asset class: Equities Switzerland (Large Caps).
    Asset region: Switzerland.
    Size: CHF 550 – 600 mn.
    Closing date: 2017-12-15.

  • QN-2385

    Asset class: Liability Driven Investment.
    Asset region: Europe.
    Size: Size: EUR 1 Billion, Liability size: EUR 3 Billion.
    Closing date: 2018-01-08.

  • QN-2386

    Asset class: Fixed income.
    Asset region: Global developed markets.
    Size: CHF 500 -1000m.
    Closing date: 2018-01-15.

  • DS-2392

    Closing date: 2017-12-21.

  • QN-2393

    Asset class: All/Large Cap Equities.
    Asset region: Europe.
    Size: EUR 200m.
    Closing date: 2017-12-21.

  • QN-2394

    Asset class: Real Estate Industrial.
    Asset region: Europe.
    Size: EUR 10m.
    Closing date: 2018-01-04.

Begin Your Search Here