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EA Pension Funds!

I don’t know whether the investment is, but if the money is invested in green bonds, which have been issued by some of the water companies including Thames and Anglian im not sure it’s the scandal it’s being made out to be

Green bonds guarantee the money will be invested in a constructive and worthwhile way and with transparency. You can’t issue a green bond and use the cash to pay dividends.
 
Dave, you may be right, but surely if the Water Co uses that money rather than there own, it inflates the profit, and the dividends to investors like the EA and the salaries?
 
Something of a red herring which could cloud what is an important piece of work by Fergal.

Bonds are an alternative investment in the issuer which typically offer a guaranteed fixed return over a fixed period. Most classes of bonds have a far greater rating than equities (shares) because of that certainty of time and return. Both forms are a direct investment into the issuer, in this case the water companies. The returns from which go to the Pension Funds not to the EA or it's Executives. It still begs the question why these funds are being invested in these private companies?

But it is almost futile to directly target the EA, its Board, Executives and Directors. As much anyone wants to criticise and blame them, they will quite correctly and legally deny, until the rivers run dry, any control over those Pension Fund "ringed fenced" investments.

That control and direction is in the hands of the Pension Fund Trustees. In this case, those Trustees are two separate independent entities: the EA Board and the EA Committee. 50% of each of those representative bodies are elected/nominated Employees, Deferred and Current Pensioners. The other 50% are company nominated representatives.

It is that first group of interested parties who should be informed, lobbied and convinced to challenge how their funds are invested (if they want to!).

For those old enough to remember the bad old days of pension fund management in the 1980/90s - think "Robert Maxwell" (yes, father of Ghislaine). He seemingly fell off his luxury yacht into the Atlantic. His death provoked a firestorm of issues, not least of which affected his employees and pensioners. It became clear he had stolen multi £millions from the Pension Funds to prop up his companies and finance his lifestyle. The world of Pension Fund management eventually changed into what it is today.
 
Hi Neil.

The Water Companies would not issue bonds unless they wanted a return on the investment.made. After payout

It would be to them what they consider " cheap money" or at least cheaper than other sources, unless other issues.. were considered.

Yes I fully understand how Pension funds work, being a recipient of my BA one, and they are certainly regulated, I probably get more details of the Funds operation than Christmas cards!

My, possibly warped way of thinking is that EA people benefit from Companies they should be monitoring.
 
Hi Neil.

The Water Companies would not issue bonds unless they wanted a return on the investment.made. After payout

It would be to them what they consider " cheap money" or at least cheaper than other sources, unless other issues.. were considered.

Yes I fully understand how Pension funds work, being a recipient of my BA one, and they are certainly regulated, I probably get more details of the Funds operation than Christmas cards!

My, possibly warped way of thinking is that EA people benefit from Companies they should be monitoring.
It's not warped Graham, fundamentally there is an obvious conflict of interest.

All this does raise further questions about the ethics of having our water companies in private ownership. Nearly £60bn paid out in shareholder dividends since they were privatised - that would have covered a large proportion of the investment in infrastructure that is required.

I can't think of a single reason in favour of having the water companies in private ownership, the model simply doesn't work. In addition to a supply of clean water, many of the things a civilised society requires from a water company such as clean rivers full of biodiversity cannot be measured in a way that rewards shareholder dividends.

Sewage discharge into rivers is nothing compared to the ticking time bomb of phosphate overload in our soils from biosolids from water treatment plants - it is far too complex a problem to reply on a model required to produce shareholder profits.
 
Graham

The Water companies issue green bonds as a way of raising finance to fund projects that have to have an environmental benefit. A bond issue will be cheaper for Thames Water than borrowing the money as a loan. They wouldnt be looking to finance the capital works their business needs from profits or retained profits. There’s an argument that the bond will raise more money for the works than the company could afford from a loan and that the works will be “greener” if there’s a transparent agreement in place for what the works will entail.

Bonds have been popular, until recently at least, with pension funds who will always look for a large amount of risk free investment in their portfolios. Green bonds are particularly popular with funds as they increase the ethical profile of the fund, which is very important for a lot of people contributing to a pension

The Thames Water Green Bond was heavily oversubscribed which suggests that anyone who did buy them got a good deal, in terms of the market. If they had chosen to sell the bond, if it is tradeable, they would have made money on it. But probably not now, high inflation and the higher interest rates that brings mean that bonds aren’t as attractive an investment as they used to be and pension funds are looking more to different asset classes.

I think, in this case everyone wins. The Water companies get cheaper finance, the EA pension fund gets a decent return on a safe investment while having a cast-iron guarantee that their contributors funds are being put to good use. And for us we get assurances that the project is “green” and has to be completed to an agreed standard

I don’t think the EA see the water companies the same way we do - as the enemy. I think that would be an unhealthy relationship.

I don’t see this as necessarily a bad thing. But no doubt other people will have different views
 
It's not warped Graham, fundamentally there is an obvious conflict of interest.

All this does raise further questions about the ethics of having our water companies in private ownership. Nearly £60bn paid out in shareholder dividends since they were privatised - that would have covered a large proportion of the investment in infrastructure that is required.

I can't think of a single reason in favour of having the water companies in private ownership, the model simply doesn't work. In addition to a supply of clean water, many of the things a civilised society requires from a water company such as clean rivers full of biodiversity cannot be measured in a way that rewards shareholder dividends.

Sewage discharge into rivers is nothing compared to the ticking time bomb of phosphate overload in our soils from biosolids from water treatment plants - it is far too complex a problem to reply on a model required to produce shareholder profits.
I don’t agree with the private ownership of essentials like water but we are where we are and I don’t see the fundamental obvious conflict of interest.
 
Thanks Dave. I understood the Green Bonds comment.

Why would a Regulator ( because the EA is)
Want to invest ( even through a Pension Fund, that will eventually reward all its employees, including those currently responsible for regulating!) with a Company it is tasked with regulating?

It seems to me, lighter controls than needed, to enrich a Pension fund would potentially benefit employees past and present
 
Certainly all EA Employees who contribute to the pension fund and the pensioners in receipt of an EA pension are currently directly benefiting from the performance of those companies the EA monitor. In my mind, it is morally wrong. It is in their hands to change it if they so wish.

The issued bonds are just another way to raise capital and can be a "cheaper" option for the issuer. But they are offered by subscription, usually only to corporate investors, and such subscriptions don't always prove popular with those investors. They are guaranteed to produce a calculated return to the subscriber after a certain date (and a guaranteed debt to the issuer &/or it's backers). The credibility of those guarantees are defined by the Issuers Credit Rating.

As for the Privatisation of the Utilities and specifically the Water Companies, I was heavily involved within the "coalition" of UK Receiving Banks managing the process of each Offer. The "aim" of Thatcher and Co was supposedly to give "Sid" (you & me) part ownership and therefore influence and control of those Utilities. That failed miserably when "Sid" got hold of his subscribed for shares and pretty much sold them immediately. Within a few months the Utilities fell back into corporate ownership. It can still be argued the Offer Price for many of the Utilities was under stated creating huge profits for those who originally acquired them (both corporate and public - not me, I was not permitted to subscribe!)

In the late 1990s Blair & Co had a great opportunity to take back the Utilities into public ownership but unsurprisingly chose not to.

Here we are today!
 
I did well out of my BA free and cheap Shares Neil🤣

And of course much of the profit made by water companies ends up overseas. Where their interest in this Countries environment may not be too strong.
 
I think that the nature of the investment - a bond is effectively a loan and these particular bonds are loans for a specified purpose - and because the pension fund is far enough removed from the EA, isnt owned by the EA and is heavily regulated in a different way than the EA means that a conflict of interest is a remote possibility

To be honest I’m out of my comfort zone now but I don’t think there’s necessarily anything untoward going on
 
Graham

........ The Thames Water Green Bond was heavily oversubscribed which suggests that anyone who did buy them got a good deal, in terms of the market. If they had chosen to sell the bond, if it is tradeable, they would have made money on it. But probably not now, high inflation and the higher interest rates that brings mean that bonds aren’t as attractive an investment as they used to be and pension funds are looking more to different asset classes.
As a result of the announcement that all Water Cos would be subject to investigation and open to possible Civil and Legal Actions, the Issuers were pretty much all downgraded by the Ratings Companies. Those Issuers had to make formal negative additions to their original Offer Documents, which in that world of finance, had a serious negative impact.
 
I did well out of my BA free and cheap Shares Neil🤣
Yep, the bank I worked for did well in Govt fees for processing the offers as did all the banks involved. I got a couple of bonuses during that period and the then normal Annual Profit Sharing programs saw a bit of cash and bank shares come my way as well (should've kept the shares longer than I did!) :eek:
 
As a result of the announcement that all Water Cos would be subject to investigation and open to possible Civil and Legal Actions, the Issuers were pretty much all downgraded by the Ratings Companies. Those Issuers had to make formal negative additions to their original Offer Documents, which in that world of finance, had a serious negative impact.
I bow to your far greater knowledge and I know I’m splitting hairs, but Thames weren’t downgraded were they?

That’s not to say they couldn’t have been, of course
 
I bow to your far greater knowledge and I know I’m splitting hairs, but Thames weren’t downgraded were they?

That’s not to say they couldn’t have been, of course
You're right. The individual ratings applied to the bonds at the time of the original offer (Oct 21) were placed on "Credit Watch - Negative" (Dec 21). The Issuer - Thames Water Utilities Finance PLC were obliged to amend the risk assessment and advise their investors accordingly. Not universally welcomed!

Just for the geeks amongst us (me!) here's a passage from the revised risk assessment:

"The section headed “TWUL revenue and cost considerations” on page 48 of the Prospectus shall be deleted in its entirety and replaced with the following: “The significant capital and operating expenditure required to maintain the network presents the risk that the cash generated by the business may not be sufficient: (i) to enable TWUL to make full and timely payment of amounts due to creditors; and (ii) to enable the Obligors to comply with requirements of the financial covenants set out in the Common Terms Agreement. Furthermore, energy costs are currently subject to significant fluctuations. Increases in energy prices which may occur from time to time may impact TWUL’s financial position. Capital and operating expenditure increases, including increases in energy prices could have a material adverse impact on TWUL and, 3 consequently on the Issuer’s ability to meet its obligations (including the payment of principal and interest) under the Bonds.”

🤞🤷‍♂️

ps: After my foray into the murky world of Govt Privatisations I worked for a couple of decades in a tiny department within the Capital Markets Division of the largest Investment Fund Manager in the world. Out of the frying pan into the fire - some would say!
 
How do you know your pension wasn't invested in a water company?
 
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