Hugo Llewelyn, Founder & CEO of Newcore Capital

Hugo Llewelyn has spent 15 years building Newcore Capital around a simple idea: own the buildings that society cannot do without.

That idea begins with technology. Hugo argues that the internet provides "a massive amount of cheap space." That space might be virtual, but it is still competing with physical space. Retailers found this out the hard way and industrial landlords found it to their advantage. Hugo referenced The Matrix, now released almost 30 years ago. "It was almost prescient in terms of what could happen to society. You can go down a virtual rabbit hole of people just doing everything online."

One hopes that doesn't happen, he said, and fight against it. But you cannot individually change how society behaves. What you can do is think carefully about what people will still insist on doing in person and own the property that enables it.

For Newcore, that means five areas:

Hugo calls this "virtual resistant real estate." It is also his definition of social infrastructure: the services essential to the ongoing functioning of society, and the physical assets that enable them.

When Covid arrived, it proved the thesis. "All of our tenants carried on operating through Covid, because if you remember, there was this question: are you an essential service or not? If you're essential, you carried on. If you weren't, you went home and sat at home." Newcore had no delinquencies. Tenants paid rent because their buildings were needed.

Newcore has three criteria for social infrastructure:

Functional. The tenants need the space for what they're doing now, and you need to be able to decarbonise it over time as regulation tightens.

Affordable. "You've got a concept of affordable housing, but you need affordable social infrastructure as well. If all your primary health is too expensive, governments can't afford it. If the private businesses that lease our sites can't afford the rents, then that doesn't perform as a property investment either."

Adaptable. “Society changes, a petrol station that was profitable on a small site ten years ago could be redundant tomorrow, ending up as a caravan sales yard.”

Functional, affordable, adaptable. It sounds like common sense, but Hugo's point is that it imposes a discipline. If those are your criteria, you're not asking whether you can financial-engineer your way to a return. You're asking whether the thing actually works and whether it will keep working as the world shifts around it.

I asked Hugo what concerns him most about the industry. Before answering, he started with a broader claim.

"Capital management is the most important service in society."

Any enterprise - a hospital, a school, a church - requires capital. Someone has to allocate it, fund it, and steward it over time. If that is done well, it enables great outcomes to the benefit of society. "If capital is managed efficiently, it enables huge positive social impact. You have to have ethical, sensible capital management in the long term, not just to make a difference, but for society to function at all."

And that is precisely what troubles him. "We've borrowed a plutocratic mindset."

Hugo draws a direct line from how capital has been managed to the problems society now faces. "The issues that society faces are a product of how capital managers have behaved in the last decade." Water companies were over-leveraged and starved of capex; now there's sewage in the rivers. Care homes were financialised before 2009 using the same playbook. ESG became a marketing label for managers who didn't care about the underlying principles.

I asked Hugo how he came to see things this way. He traced it back to the years between 2004 and 2009. At the time he was co-running a business called Protego, which was eventually sold to Barings in 2010. Between 2005 and 2010 their returns were subpar. “We were quite a long way ahead of the market, but what a ridiculous use of five years. By 2007 you could see that the excesses of human nature were driving every capital decision.”

The problem with fund management, he said, is that the conflict is built in. If you're an asset gatherer, if your goal is to reach £5 billion or £100 billion in AUM, you're structurally disadvantaged when it comes time to sell. Protego had about £2.5 billion and in 2007 they knew the UK was overpriced. They should have sold everything. But they had employees. They had enterprise value to protect. So instead of selling, they pivoted to the Nordics. And of course, what happened in the UK and America happened there too.

"One learns very clearly from that: if you're given capital and you're setting up a business with an innate conflict like that, you've got a problem to start with."

What stayed with him was the injustice of what came next. The bailout of big balance sheets. The way wealthy institutions and individuals rose on the back of QE while two groups were pushed down: the poor and the planet.

"I don't think capital management should be an amoral industry. And that is at best what it is for the most part."

He sees it in the young people entering the industry, forced into firms whose structures reward behaviour they wouldn't otherwise choose. "It's dehumanising in a way. Many investment banks and private equity fund managers claim great social impact or ESG, but actually they are set up for one purpose only: to make money for themselves."

And yet, he said, almost everyone you meet is decent. "Almost everyone you meet in our industry, fund management and property investment, are absolutely lovely people. I reckon 5% of the people you meet aren't very nice. And yet, because they go through a door into a business set up to do things that are questionable but it's their job. They've got to feed their families. Of course it's understandable."

Hugo doesn't expect to change the industry by making the case. "We've got to just get on and do it. No one cares what I think." But he believes in demonstration.

The model he's built is simple - own buildings society cannot do without, treat your stakeholders well, stay independent so no one can force you to behave otherwise. He is the majority owner of Newcore. His partners share his views. That structure means no one can push them toward short-term thinking or force compromises they don't believe in.

"You espouse this view; you stick by it because you don't want to be a hypocrite. But it's just naturally how we think about life. And our funds do well because of it."

The returns bear that out. Newcore has outperformed the UK funds index by 5% per year over the last decade. But Hugo's point isn't that ethical behaviour is profitable. His point is that the two aren't in conflict. You don't have to choose between doing well and doing right. The industry has convinced itself otherwise, and that conviction has justified a lot of damage.

Maybe institutions will start to notice that the big names lost money while enriching themselves. Maybe the 95% of decent people in the industry will find structures that let them act on their instincts rather than against them. Whether the rest of the industry follows is out of Hugo's hands. What he can control is the proof that it works.