Meet the Manager - Bob Becker, Cohen & Steers
While AGLI portfolio manager Bob Becker was in Australia recently for our national roadshow, we took the opportunity to ask him about his 25 years of investing in infrastructure, what attracts him to the asset class and how observing the collapse of Enron made him a better investor.
What led you to a career in investment management?
When I was at the University of California at Berkeley studying economics and political science, I read two books. The first was Market Wizards by Jack Schwager in which he interviews some of the most successful traders in the world. The second book was Liar’s Poker by Michael Lewis about his time at Salomon Brothers during the 1980s. Reading these books ignited a passion in me for the financial markets.
Before this, I didn’t know a lot about the markets. I’m the first in my family to work in the industry (my dad was a scientist and a mathematician for the government and my mom was a homemaker) and these books opened my eyes to a whole world I didn’t know about. I realised that markets aligned with my interests – current events, politics, and economics. I learned that part of understanding markets is the financial analysis, but it is also understanding how psychology, sentiment and current events drive investor’s actions. When I discovered that financial market analysis is at the intersection of these factors, I thought ‘this is right up my alley!’
How did you get into the industry?
I had a passion for investment management and I really wanted to get a start in the industry. So when I graduated, I took a risk and moved to the other side of the country to take a junior role in Boston on the fixed income floor at Scudder, Stevens & Clark. It was there that I eventually got the opportunity to work for a very senior transportation and utilities equity research analyst. Immediately I was meeting with senior industry figures and building my understanding of the infrastructure sector.
What was your next career move?
From there I went to Salomon Smith Barney where I worked in sell-side research focusing on electric utilities and independent power producers. That was when power markets were being de-regulated in the United States, giving rise to companies like Enron that engaged in new activities like energy trading and merchant power production. Obviously, Enron became a huge growth stock and then later on it was one of the largest scandals in corporate history after widespread manipulation of its financials was uncovered.
What investment lessons did you take from observing Enron?
It taught me to be very sceptical of what management tells you. That’s a great frame of reference in the asset management business. More broadly, taking a sceptical view is a great way to avoid companies that disappoint expectations. We try to impress on all our analysts the importance of being sceptical having an independent view. There will always be companies that disappoint the market and there will always be businesses misrepresenting their future growth prospects. It is important to do the work and have an independent view of a company. That means don’t take a company’s guidance as fact and ask a lot of questions. Question assumptions and test those assumptions.
From there, how did your career lead you to Cohen & Steers?
My next career step was to Franklin Templeton where I was an analyst and a portfolio manager for the Franklin Utilities Fund. Founded in 1948, it was the first utility fund in the world and the original manager of the fund was the founder of Franklin Templeton. I was there for four years and for three of those, it was the top performing utilities fund, partly a result of avoiding the Enron-type disasters that occurred in the power sector. Several utilities, independent power producers and energy traders had horrific share price performance as they chased these new energy related businesses when they didn’t fully understand the risks of the changing power markets.
Then in 2003, I joined Cohen & Steers to set up the firm’s global listed infrastructure strategy with Ben Morton.
What attracted you to Cohen & Steers?
From talking to people in the business, I quickly learnt that they have a great reputation. I believe we have a reputation for being very smart people, doing things the right way, being conservative and delivering a high-quality product for their investors. We don’t chase fads, we just try to do what’s right for the investor and be prudent and measured in our actions.
What was the catalyst for Cohen & Steers to establish a listed infrastructure portfolio?
Cohen & Steers is a conservatively managed business, but the founders, Bob Steers and Marty Cohen, also have had a great deal of foresight when it comes to business opportunities and seeing new markets developing. For example, in the 1980s they started the first listed property fund. When we started, they had a vision that listed infrastructure, like listed property, could emerge as an asset class. This has proven correct – our global listed infrastructure portfolio has grown from nothing to around $7billion today.
With more than 25 years of infrastructure investment experience, what appeals to you about the asset class?
It’s the prospective opportunity for investors to get good returns through stable businesses in combination with opportunities for growth. The need for continued investment in infrastructure is driven by some powerful forces. For example, there’s been a lack of investments in development markets and governments balance sheets are stretched, and in emerging markets, it’s trends like urbanization and industrialisation where governments need to build out their infrastructure to meet the needs of their growing economies.
What are the risks of investing in infrastructure?
We believe the key risks to mitigate are political and regulatory. We navigate the political and regulatory environment with analysts ‘on the ground’ in various local markets. Something that differentiates us is that our senior analysts are from these local markets. For example, our analyst covering Latin America grew up in Venezuela, our European analyst is from Paris and our Hong Kong analyst grew up in Shanghai.
We look for people who have a lot of experience in local markets and have relationships, not only with the companies, but with the local regulators that can have a big impact on the return profile of infrastructure companies, particularly in the more regulated businesses.
Is listed infrastructure a more volatile investment than direct infrastructure?
Infrastructure securities are constantly being priced in the listed market. In contrast, a direct infrastructure portfolio is typically valued just once or twice a year. Therefore, over the short term, listed infrastructure appears more volatile. However, with both investments the investor can get exposure to the same assets and the same underlying cash flows. In fact, sometimes listed infrastructure companies will invest alongside direct and private infrastructure investors. Over time, we feel these assets should deliver similar returns for the same businesses.
What is the outlook for listed infrastructure?
It’s an exciting time for global listed infrastructure as it becomes an established asset class in its own right. In Australia, listed infrastructure is already well established. In other parts of the world, direct or private infrastructure investment has long been accepted as an asset class, but listed infrastructure is still emerging as a separate asset class. Increasingly, institutional investors are attracted to listed infrastructure assets and, as they continue to allocate a portion of their portfolios to the asset class, this will create significant demand for infrastructure securities. The potential demand for these securities is really quite staggering. In our view, this trend, along with tremendous growth opportunities for the underlying companies, should lead to very good returns for listed infrastructure investments.