Investment chief wary about flashing cash ‘at this point’

Friday interview: Jim Barry, investment chief at BlackRock Alternative Investors

Jim Barry,  chief investment officer of  BlackRock Alternative Investors. Photograph: Dara Mac Dónaill

Jim Barry, chief investment officer of BlackRock Alternative Investors. Photograph: Dara Mac Dónaill

 

Jim Barry, the Irishman promoted earlier this year to investment chief at US asset management giant BlackRock’s alternative investments unit, has no problem getting a good night’s sleep wherever in the world he finds himself. It’s just as well, as he clocks up 250,000 air miles a year for work.

Now, he’s given staff permission to rest easily if they are hesitant about investing clients’ money at this late point in the economic cycle.

“I’ll stand behind any team that doesn’t deploy capital because it isn’t the right opportunity,” says Barry in his office in Dublin. “When you raise huge amounts of cash, it creates a huge pressure to spend. You’ve got to counter that pressure to invest at this point, late cycle. Otherwise mistakes will be made.”

The signs in the markets are ominous. Growth is easing, with the International Monetary Fund predicting last month that the global economy will expand by just 3 per cent this year, the lowest level since the financial crash of a decade ago.

Yet stock markets are at record highs, with the MSCI World Index having jumped 20 per cent this year to more than recover from a wobble last year, as major central banks have moved again in recent months to keep the music running.

Their actions, and growing fears about a global recession, have also served to push the rates on more than $13 trillion of bonds – mainly in Europe – below zero per cent, putting pressure on investors to seek out riskier investments to make returns.

“The show is being kept on the road by two things – central bank monetary policy and the US consumer,” says Barry. “We’re seeing challenges in Germany, China, Europe, and the UK, for reasons to do with Brexit. I’m on the bearish side and think the instability we’re seeing geopolitically and in global trade is beginning to play out in investment and that will ultimately knock into consumer confidence. We’re going into 2020 in a defensive posture.”

Having experienced the effects of the UK housing crash in the early 1990s as a mergers and acquisitions banker with Morgan Stanley in London, and coming to regret some decisions the following decade as chief executive of toll-roads-to-waste company NTR, he’s good reason to be wary.

The genial Cork man, once among the best-known business chief executives in Ireland, has adopted a lower profile at home since leaving NTR for BlackRock more than eight years’ ago, even though he remains based in Dublin.

Global Undergraduate Awards

He agreed to be interviewed against the backdrop of the 10th anniversary of his chairmanship of the Global Undergraduate Awards, which hosts its annual summit in Dublin next week.

“The awards bring together some of the smartest undergraduates in the world who are going to be leaders in academia, social enterprise, business or politics – and they’ll come away with a sense of this country, which is really important for Ireland Inc. And I say that as someone who runs a global business out of Ireland.”

Barry, whose mother was an orthodontist and whose father built up a business that’s now part of accounting firm EY, pursued his own undergraduate studies at University College Cork, where he secured a commerce degree in the 1980s before joining the mergers and acquisitions (M&A) division of Morgan Stanley’s investment banking unit in London in 1989.

In London, Barry and his friend Niall McFadden – who would become a boom-time financier before succumbing to bankruptcy during the financial crisis – ran the Wall Street bank’s Irish recruiting programme.

One of their hires was Barry O’Callaghan, subsequently best known for his time as chief executive of the Riverdeep digital publishing group that would face its own debt issues after merging with Boston-based publisher Houghton Mifflin Harcourt just before the crash. O’Callaghan, who owns the Cliff hotel chain here, shared apartments with both.

At Morgan Stanley, Barry, as he put it, “worked on some of the biggest insurance mergers that never happened”. His time there also confirmed that he didn’t want to become a career banker.

“I loved M&A, and it would continue to be a part of what I’ve subsequently done. But working for an investment bank, you served the client. I always wanted to be a business manager – to be in a principal position.”

In 1992, Barry left the bank to undertake a masters in business administration (MBA) at Harvard, the Ivy League bastion, before joining global management consultancy Bain & Company two years later, which he saw as another stepping stone in his career.

Barry decided in 1998 with his wife, Sharon, whom he’d met in college, that they wanted to come back to Ireland with their expanding family. During a summer of networking in Dublin, he was enticed by NTR’s founder, Tom Roche jnr, who was seeking to move the business beyond its East Link and West Link toll bridges in Dublin.

Handed a fancy title of group development manager, Barry was heavily involved in NTR’s foray outside of toll roads by taking an initial 50 per cent stake in Celtic Waste in 1999.

Months later, he drove NTR’s taking of a 51 per cent interest in green energy entrepreneur Eddie O’Connor’s then fledgling Airtricity business as it was developing its first wind farm in the Republic at Culliagh, Co Donegal. NTR would follow its money in subsequent rounds at Airtricity as it ventured into the UK in 2002 and the US two years’ later.

Succeeding Roche as CEO in 2000, the fresh faced 34-year-old NTR boss had to deal with a two-week strike in his first year at the company’s two toll bridges, as he resisted a union wage demand. He called on head office staff, family and friends to man the posts to keep traffic moving.

Did he roll up his sleeves himself? “I was never in a booth but my wife did the morning shift in the East Link.”

NTR struck a deal to sell the hated West Link toll bridge on the M50, the scene of some of the worst traffic congestion during the Celtic Tiger years, in late 2006 to the State. However, it would be well into 2007 before the deal was finalised, after tax issues were ironed out.

Morgan Stanley was lined up at the outset to refinance the State’s planned staged payments to NTR over 12 years for the West Link for an upfront payment of €488 million in what is known in the financial world as a securitisation deal.

Within weeks of the deal being sealed in June 2007, global debt markets began to wobble as the first signs of the credit crisis began to appear. “Never confuse a dose of good luck for brilliance,” says Barry.

Two months later, NTR-controlled Airtricity signed a deal to sell its North American unit to German utilities group E.On in a deal worth $1.4 billion and immediately put its remaining European business on the block.

Scottish energy group SSE was selected on Christmas Eve as the winning bidder with its offer of about €1 billion, when cash from the US deal was stripped out.

“We started exchanging phone calls on Christmas Day and signed on January 4th. Equity markets soon fell out of bed,” he recalls. The MSCI World Index would fall as much as 12.4 per cent within three weeks of the deal, setting off the biggest market collapse since the Great Depression.

NTR had a strong view at the time that because the European business of Airtricity was looking more at offshore developments, it didn’t have the balance sheet to support that.

“The momentum of that business was too much for NTR, and I would say if we had carried Airtricity into the global financial crisis, it would have gone bust,” he says. “Because the crisis re-priced risk and capital wouldn’t have been available to us.

“Eddie is one of the few men in the world that I would describe as a visionary – who had both a view of the future and a stubbornness to shape it,” says Barry of O’Connor, who would immediately go on to found emerging markets-focused power company Mainstream Renewable Power. “But that stubbornness needs to be channelled.”

He said it was the combination of O’Connor’s original partners, financier Louis Fitzgerald and solicitor John Lavery, Airtricity’s management team, and the “stability” of a shareholder like NTR that helped to bring focus to the entrepreneur’s drive. “I don’t think it would have happened without all of three components,” he says.

Shelled out

With money burning a hole in its pockets, NTR shelled out $150 million in 2008 for a 62 per cent stake in US-based Wind Capital Group and stumped up $100 million for a 52 per cent shareholding in Stirling Energy Systems (SES), an Arizona-based developer of solar plants.

The problem was that SES’s SunCatcher technology, based on concentrating solar power (CSP), began to lose ground dramatically against the other leading photovoltaic (PV) technology in 2010 as the cost of the latter plunged.

“There is no question that in backing a technology, we moved into a different area of risk,” he says.

NTR sought to spread the risk on its solar bet by setting up a development company called Tessera, which planned big Californian solar projects in Imperial Valley and the Mojave Desert. However, it struggled to get funding for these as would-be investors saw the sites and the SES as one.

NTR would post an almost €400 million loss for the year to March 2011 as it wrote of its investment in SES. The Arizona-based company would file for bankruptcy within months.

Closer to home, Greenstar, as Celtic Waste was rebranded in 2003 after NTR upped its stake to 77 per cent, racked up losses in the Republic during the downturn as waste volumes plunged and landfill levies soared. Greenstar Ireland slipped into receivership in August 2012.

Still, Greenstar would reap the benefits from moving overseas, with its UK unit selling in 2010 for £135 million (€157 million) and its US division fetching $180 million (€162.5 million) three years’ later.

“The mistake I made as CEO was that I knew the world had changed in September 2008. I was in New York the week of Tarp,” he said, referring to the Troubled Asset Relief Programme to rescue the banking system, unveiled by George W Bush’s administration in the wake of Lehman Brothers’ collapse that month.

“What we should have done then was extrapolate all our capital requirements over the next three years and ask ourselves: ‘What if we could never raise another dollar of private capital?’ If we’d done that, we’d have immediately slowed down. But we didn’t do it for a year and a half.”

Renewables

NTR, now exclusively a renewable energy company focused on Ireland and the UK and almost entirely owned by the Roche family, spun off its legacy toll roads and water business into a wind-down vehicle called Atlas Investments.

In early 2011, Barry joined BlackRock as chief investment officer of its new renewable power investment business, as the US investment giant set up a strategic partnership with NTR in that space. He took 11 others with him.

The BlackRock NTR Renewable Power Fund had raised $252 million by June 2012. The US group now manages $5.5 billion of renewable energy assets – at a time when money is flooding into anything with a “green” label attached. It is reportedly targeting $2.5 billion of investment for its third renewables fund.

BlackRock chief executive Larry Fink, who is in charge of almost $7 trillion of clients’ money, has been adding to Barry’s workload, prompting him to run a newly-created business in 2016 to cover its interests in infrastructure, property, energy and transport. That unit currently has $53 billion of assets under management and 400 staff globally across 26 offices, 30 of whom are based in Ireland.

Earlier this year, Barry was installed as chief investment officer of BlackRock’s wider alternative investments business, which has $195 billion of assets under management and 1,000 staff. He reports to Tullamore native Edwin Conway, global head of the division.

While Barry has given staff the imprimatur to be extra cautious about investments at this point in the cycle, he’s warned them not to sit on their hands.

“You can’t be overly conservative. There’s no black and white in this game. It’s about shades of grey and just telling people not to invest isn’t the answer either, as that wouldn’t be delivering for clients. There are still opportunities out there that I’m seeing every day. But discipline, discipline, discipline is my mantra.”

It’s one borne out of experience.

CV

Name: Jim Barry

Job: Chief investment officer at BlackRock Alternative Investors and global head of the firm’s real assets business

Age: 52

Lives: Blackrock, Co Dublin

Family: Married to Sharon and has four children, two boys and two girls, aged between 15 and 24

Something you might expect: As a Cork native, he’s fanatical about the county’s hurling team and Munster rugby

Something might surprise: Even though he spends most of his working time travelling, he says he can fall asleep in five minutes in any environment.

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