One little nuance I would add in under the heading “Everyone faces weak incentives for long-term investment”.
There is a class of investors who, if given the opportunity, will self-select into owning regulated utilities. Pension funds and others who welcome the regularity of a regulated return do in fact have the incentive to favour long-term investments. There are looking to invest in long-term assets that match their long-term liabilities.
In New Zealand, we have seen offshore pension funds investing in regulated utilities: First State acquired Vector’s and Maui Development Corporation’s gas assets, QIC and AMP have stakes in PowerCo and Canadian pension funds now own a lot of local cell phone towers.
Thanks Peter. A great point! People (including me sometimes) tend to overlook the fact that capital markets are matching markets as much as they are spot markets. Cheers, Dave
Eric Crampton has done a lot of good work on replacement models for 3 waters. Read about it here https://www.newsroom.co.nz/on-water-reform-national-and-act-are-sailing-on-same-course
Kia Ora Dave
Great article!
One little nuance I would add in under the heading “Everyone faces weak incentives for long-term investment”.
There is a class of investors who, if given the opportunity, will self-select into owning regulated utilities. Pension funds and others who welcome the regularity of a regulated return do in fact have the incentive to favour long-term investments. There are looking to invest in long-term assets that match their long-term liabilities.
In New Zealand, we have seen offshore pension funds investing in regulated utilities: First State acquired Vector’s and Maui Development Corporation’s gas assets, QIC and AMP have stakes in PowerCo and Canadian pension funds now own a lot of local cell phone towers.
Ngā mihi.
Peter Wilson,NZIER
Thanks Peter. A great point! People (including me sometimes) tend to overlook the fact that capital markets are matching markets as much as they are spot markets. Cheers, Dave