USS and Thames Water – 1 billion pounds of our money down the drain

How could this happen? Here is the summary version*:

USS first bought a major stake in Thames Water in 2017. This was after Thames Water had been bought by the private equity firm MacQuarie, a company described in the financial press as a “vampire” [1], for its highly profitable practice of buying up nationalised companies, and loading them with debt whilst paying large dividends to their investors instead of investing in basic infrastructure. USS’s purchase was also after Thames Water had been hit with record fines for pollution due to decaying infrastructure.
In 2021 USS bought a further stake in Thames Water, taking its ownership to 20% – valued at about one billion pounds – making it the biggest UK investor. Again, this was despite Thames Water’s continuing exceptional levels of environmental pollution. USS described its investment in 2022 as a “long-term, stable, predictable, regulated and inflation-linked” asset, and subsequently pumped a further £500m into the utility [2].
By 2023 the utility had debts of £16bn and rapidly rising interest payments. An Environment Agency report stated that with regard to pollution incidents, “Thames Water had their worst performance since 2013”. Note that USS has a seat on the Board of the company so bears shared responsibility for all of this.
USS has received no shareholder dividends or loan interest in the seven years since they first invested in 2017.
In January 2024 it was revealed that USS had suffered a huge loss of almost £600m in the value of its 20% stake in the utility [3]. USS stated [4] that they “view this as a long-term investment” and that they are “willing to commit additional funds to the business in March 2023 and have shown willingness to commit more in the future”. In May 2024 the largest investor in Thames Water, the Canadian pension fund Omers, announced that it had totally written off its 31% stake as valueless [5].
In July 2024 it was revealed that USS had totally written off its 20% stake, previously valued at nearly £1bn, in Thames Water [6]. USS has been extremely parsimonious in revealing any information about how and why it came to repeatedly invest huge sums of members’ money in a failing utility, and has fielded news on each stage of the disintegration of Thames Water with short, bland comments including, incredibly, that investments “can go up and down” and the slight understatement that Thames Water ‘had not been a successful investment’, as if losing the entire stake in your largest single investment was somehow equivalent to an everyday stock fluctuation.
As Thames Water heads rapidly to bankruptcy, with its debt now rated at junk levels, a new generation of corporate vampires have circled and are exacting highly profitable arrangements for “rescuing” it, in the form of loans with crippling high interest rates coupled with steep fees [7].
The cost of these loans, and the huge cost of infrastructure investments needed, will inevitably be passed onto customers, as the UK government has not intervened, apparently preferring to see a further round of privatisation profit-taking, rather than taking the utility back into public ownership, as is the case in most Western countries.
USS has apparently learned nothing from this unmitigated disaster – it has been reported that they are interested in investing in an expansion of the nuclear facility at Sizewell C [8], despite clear warning signs of the high level of risk – see [9] for an analysis.
The continuing USS statements of blind confidence in an industry that is patently heading for disaster, and their assurances that their “engagement” will eventually make a difference, entirely echo their approach to the fossil fuel industry and its funders.

In summary, USS’s investment of around £1bn in Thames Water has lost all of its value. This is roughly £2,000 per member. On top of this, USS has received zero income since it invested. The fund has essentially said nothing about how it came to make this investment, what their seat on the Board of the utility was doing all this time, and why they remained a shareholder despite all the evidence that the company was a bad investment at the start and that it was only getting worse. USS members deserve better – at minimum a public inquiry into this.

Write to the Chair of the USS Board, Dame Kate Barker, using this form, to ask her to explain how this loss came about and how USS plans to avoid similar disasters in the future.

* For more detail and references up to July 2024 please see this Factsheet [10].

DivestUSS November 2024

References

[1] Managed by Macquarie: the Australian group with a grip on global infrastructure, Financial Times, 27^th June 2023.

[2] Big Thames Water investor backs turnaround plans

https://www.bbc.co.uk/news/business-66079676, BBC News 2^nd July 2023.

[3] USS writedown comes as the utility is seeking to raise £2.5bn of new equity,

https://www.ft.com/content/966b77d6-7ea8-4d3b-a0a2-e83d07be42ed, Financial Times 2^nd January 2024.

[4] An update on our investment in Thames Water,

https://www.uss.co.uk/news-and-views/latest-news/2024/01/01042024_an-update-on-our-investment-in-thames-water, USS press release, 4^th January 2024.

[5] Big UK pension scheme under pressure over Thames Water stake

https://www.ft.com/content/9de54303-6cab-4f81-91a6-ff9fe25617f1,