It might seem an unlikely comparison but Gershon Cohen, the chief executive of infrastructure funds at Lloyds Bank, believes that the UK is similar to leading supermarket chain, Tesco: they are both successful in some areas and not so hot in others.
He explains: “A lot of people say that Tesco is a successful grocery company. Actually, it’s not, it’s a successful logistics company. That’s why it’s a great company. It has a brilliant distribution capability.
“The way I look at the UK is a bit like that — we have a lot of things going for us but we have a lot of things that we haven’t. We don’t have a massive industrial base, but we do have: a great global position, a universal language, the world’s leading legal system, a place people want to live, an amazing culture, education system, it’s relatively safe and the weather is not extreme.
“What we need is to be a fantastic hub where people can locate, bring in expertise and sell expertise. We need brilliant distribution; the best airports, ports, road and the best systems to make sure that everything works efficiently. We are by no means anywhere near.”
But Mr Cohen is certainly doing his best to help the UK get there. Prior to the financial crisis, Mr Cohen was head of the project finance team at HBOS, but when HBOS collapsed and was rescued by LloydsTSB, he was invited to lead the new Lloyds Banking Group’s combined global project finance team, in addition to building a fund management platform focused on investment in infrastructure. He is currently successfully spearheading a fundraising programme to invest in three funds targeting the UK, Europe and North America/Australia, and is on target to raise another £500 million pounds this year. £300 million was raised from institutional investors in 2012 and he is on target to raise another £200 million pounds this year. The fund platform has now been transferred from the Lloyd’s banking division to its specialist fund manager and asset management business, Scottish Widows Investment Partnership (SWIP).
Mr Cohen, who travels every other week for work, says the global appetite for infrastructure has increased significantly over the past few years.
“It has become apparent that investors have an insatiable appetite for infrastructure. It has become the fourth asset class.”
Why? “Institutional investors are seeking to invest in infrastructure opportunities for a number of reasons; namely diversification, inflation hedging and portfolio stability. Since the crisis, investors are looking to establish more diversified and less correlated portfolios in order to reduce risk.
“Institutional investors have historically invested in property, general equities and gilts, and they managed to achieve the returns they needed to match the liabilities they had. But now, they are shying away from property; equities are equities, and indexed bonds don’t give much of a return, so they are looking for something that has the same types of characteristics but with a better return. There are not many products out there that are like that, but infrastructure is. It looks a bit like something we had before and gives the sorts of returns investors like but can’t get elsewhere. It has become very attractive to a variety of investors including pension schemes, asset managers, sovereign wealth funds and family trusts.”
What are the more popular infrastructure investment areas? “An institution that is trying to match long-term liabilities would like social infrastructure assets where the revenues are underpinned by government contracts, and are very stable. The institutions that are much more aggressive or have more opportunity to flex their investment abilities will go for more acquisition or speculative-type investments. Some asset managers (the UBS’ of this world) have clients who might want more of a sexy product and will want to invest in things that might deliver higher returns and are more exciting.
“UK pension funds generally want long-term stable investment driven off a government contract.”
Mr Cohen, aka “Mr Infrastructure”, is a sought-after international speaker and with infrastructure high-up on the government agenda — there was a major focus in the Autumn Statement on investment in infrastructure as a key component to underpin economic growth and the importence of private sources of capital to finance this — he spends a lot of time “running round Whitehall.” So, what does Mr Cohen, who correctly called things in 2008, make of the current UK economic situation?
“In 2007/2008, people asked me how long the financial situation would go on for and I said two generations and they laughed at me. But I always felt it would take the best part of two decades to steady the ship and work out where we were going.
“The government were right to be austere in their controlling of expenditure but what they didn’t do as well, was to develop a vision for the future. They are doing this now. Meanwhile we are still very leveraged. My concern is that there is a lot of conservatism out there because countries don’t want to do much more until they have deleveraged their own balance sheets and that is what happened with the banks. It is the right thing in principal but what you then have to think about is what to do to increase growth.
“In my view, that is the only thing that will rescue the economy — the creation of businesses and ideas that will generate income. At the moment, I am a little negative, because I can’t see too many areas in which we are likely to benefit from a large-scale increase in revenue.”
He continues: “At the heart of the UK economy should be SMEs. I am not a fan of people that say we are a consumer economy. I think that’s a by-product of having lots of good businesses that produce a lot of income to line people’s pockets so they can go and spend money. But you have to have successful businesses first.
“We have some fundamental problems with our economy and I don’t see it getting better for some time. The politicians need to come in and tell us the direction we are heading in. Just being austere isn’t a vision.”
Mr Cohen, who qualified as an accountant and spent over two decades in banking, believes the sector has unjustifiably been made a scapegoat for the crisis. “If anything, it has got worse. It is such a shame that a profession that I have loved and worked in for so long , which is so critical to the Western economy and so important as one of the key UK economic drivers, was seized upon as the scapegoat for all the problems associated with over-leveraging that caused the crash when the merry-go-round stopped.
“People don’t understand the financial structures in the City. Because it’s complicated they focus on the easy things like salaries and bonuses. While there were greedy bankers, there were also greedy individuals; business directors and politicians. Many people in financial services work extremely hard and care about the customer and future of the economy. People don’t appreciate how important London is as an international powerhouse. If we beat ourselves up, another City will take over and that will be heart-rendering.”
Mr Cohen acknowledges there is still a bad aura around the City and hopes people will still pursue careers in financial services. “What we need is a role model. That’s what is missing. For a long time, it appeared to be former Barclay’s boss Bob Diamond, but the $50 million bonus didn’t fit comfortably with the population.”
Mr Cohen started his career in 1988, becoming and associate director of Hill Samuel. He joined LloydsTSB as a senior director in 1996 and became head of project finance at HBOS in 2005. He is now solely focused on fund management having been appointed CEO of Lloyds Infrastructure Funds.
He cites investing in infrastructure as a way to help UK economic growth. “If you want to get the UK out of the gloom, people need to point tangibly to areas where there is genuine economic growth or at least a strategy of getting there. Investing in large-scale infrastructure is potentially a way as it stimulates jobs and potentially underpins the future businesses that depend on it to efficiently distribute services, goods and human resources, but we are no means there yet.”
According to a study by Heathrow airport, its lack of capacity could cost the economy £26 billion a year by 2030. Its research from Frontier Economics, One Hub Or None, says pressure on Heathrow’s capacity already costs the UK up to £14 billion a year.
“Can we wait 20 years for a new airport? I feel that if we had the best airports in the world, people would come in and out more. But it takes a long time. And that’s part of the problem. Infrastructure is a very long-term strategy.”
He says: “The global economy will grow. There is a danger that the UK economy will stagnate, however if we can focus on entrepreneurial business/SMEs, matched with a world-class infrastructure, I think we have a fighting chance.”
Mr Cohen lives in North London and is an active member of Mill Hill Synagogue. He volunteers in a small music band that performs at Jewish Care and Norwood centres in London. He is married with two sons.
