An aerial view of a sewage treatment plant. (Silas Stein / picture alliance via Getty Images)
Originally published in Jacobin on May 5, 2023
Review of Our Lives in Their Portfolios: Why Asset Managers Own the World by Brett Christophers (Verso, 2023).
Asset-manager firms like Blackstone have become hugely important players in global capitalism since the 2008 crash. They’re steadily taking control of the social infrastructure that’s essential for human life and using it to generate massive profits.
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.
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, 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 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 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 (2018) and Rentier Capitalism (2020).
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,” 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 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. 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 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 to mid-market apartments in Tokyo — 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.
Understanding the active role that the state plays in bolstering an asset-manager society adds necessary nuance to discussions of state abandonment 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” 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.
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.
Adam Almeida is a senior data analyst at Common Wealth, where he researches gentrification and housing financialization.