The Universities Superannuation Scheme, London, has stated in its annual report that the value of its holding in troubled firm Thames Water as of March 31 was “minimal,” essentially admitting to an almost full write-off, a position USS “deeply regretted”, in the words of Simon Pilcher, chief executive of USS Investment Management.
Kate Barker, chair of the trustee board at the USS, stated in the results there was “a great disappointment and frustration” that the fund’s engagement with Thames Water and Ofwat, the U.K.’s energy regulator, “has not borne fruit”.
The USS holds a 20% stake in Thames Water, an investment valued at £956 million in 2022. While USS remains a shareholder, the company report stressed that the future outlook for the Thames Water was “unclear”. USS has £78 billion in total assets as of 31 March.
In April this year it was reported that after suffering years of losses and fines over issues such as improper disposal of sewage, investors in Thames Water, a private firm that is the U.K.’s largest water and wastewater services company, could lose as much as 40% of their existing investment if the company is subject to a potential emergency renationalization as proposed by the U.K. government.
All nine shareholders of the company, including USS, have since announced they would not be investing new equity into the company.
In May this year, the Ontario Municipal Employees' Retirement System, Toronto, announced it would undertake a “full write-down” of its 31.7% stake in Thames Water.
USS stressed in its report that since it first invested in 2017, any profits that might otherwise have been used to pay shareholder dividends were reinvested into the business, and that USS did not receive any dividends or payments of interest on any shareholder loans.
Pilcher said of Thames Water: “It is clear this has not been a successful investment.”
The USS annual report also showed that private markets as a whole delivered strong returns to the plan over an extended period. Over 10 years to 31 March, USS infrastructure assets delivered annual returns in excess of 11%.
“Notwithstanding the losses incurred on Thames Water, our private markets team has delivered strong overall performance since it was established in 2007. Our diversified investment strategy means that no single investment is of sufficient magnitude as to jeopardize the plan’s ability to pay its liabilities as they fall due”, said Barker.
