We speak with Lianne Buck, former Head of Infrastructure of TCorp and Director of Melbourne Airport, about how the airport sector will cope with the turmoil caused by the coronavirus pandemic.
The coronavirus pandemic has affected many people across many sectors, from restaurants to retail shops, as public life has ground to a halt.
But perhaps one of the hardest-hit industries is air travel. As the pandemic gained a foothold across the world, flights started to get cancelled.
Towards the end of March and all through April the number of flights globally started to plummet, so much so that by the end of April the total number of flights were down 80 per cent globally, year-on-year.
Many countries have banned international travel and Australia is no exception. Airline Qantas has cancelled all international flights – except for services to New Zealand – until at least October.
So if you are an institutional investor, who relies partly on their infrastructure assets for defensiveness in their portfolio, how do you deal with your investments in airports?
Lianne Buck was Head of Direct Investments & Infrastructure at TCorp until last year, when she decided to focus on a portfolio of directorships. Buck is currently a director of Australia Pacific Airports Corporation, which owns Melbourne and Launceston airports.
Buck expects it will take some time for airports to recover, probably longer than during previous crises.
“It will not be a quick recovery because even once the travel restrictions are raised, it will take time to regain confidence from travellers. That’s what the airports are really thinking about now: ‘What do we need to do to regain traveler confidence and make them feel safe in the airport?’” she says.
“But the good thing about these sectors is that they do work very well together to really bring the best ideas of different markets together.
“So I think, yes, there will be a recovery, but it will be slow and it will be longer than any recovery we’ve seen, even longer than 9/11 and SARS. Things bounced back relatively quickly then, but we’re not really forecasting that to be the case in this instance.”
There will be a recovery, but it will be slow and it will be longer than any recovery we’ve seen, even longer than 9/11 and SARS. Things bounced back relatively quickly then, but we’re not really forecasting that to be the case in this instance
But she is also cautiously optimistic about the ability of airports to absorb this shock. These assets are generally well capitalised and have been taking advantage of the lull in traffic to fast track a number of technological innovations, she says.
“In some ways, this crisis has probably just brought forward a lot of innovation and development that would have otherwise occurred over a longer time frame,” she says.
“In airports, for example, we were already thinking about the journey through an airport and how that could be contactless. That was really driven from an efficiency point of view, so now we will just continue that work, but we will have the added benefit that there will be health benefits as well.
“It is similar to what we see in the office space: everyone was already thinking about the future of work and what workspaces will look like in the next decade. [The pandemic has] brought that thinking forward and to some degree the crisis will be instructive in giving clarity around what that future could look like and what people’s concerns are likely to be.
“So I think the recovery will be slow for some and I do think that things won’t look exactly the same as they did before, but I think the ability of these assets to really innovate and evolve … that has been the case generally in the past.
“It’s difficult because it’s slow, because investing in airports requires planning approvals and significant capex programs, but interestingly in periods of very low demand that is when you actually can move forward more quickly on some of those initiatives.”
Unlisted Assets at TCorp
During her career, Buck has held senior asset management roles in the unlisted asset sector for Macquarie, Westpac and Hastings, and in 2012 joined State Super. With the amalgamation of the various asset management operations of New South Wales, she joined the team at TCorp.
She says one of the key challenges at that time was the fact she inherited a number of portfolios with very different profiles, as each one had been put together by a different team for a different organisation, all with their own investment targets.
“We had some clients who already had started building a direct portfolio; they had been investing in this asset class for much longer versus other clients, who in some areas, such as infrastructure, had not invested at all,” she says.
“Then there were those who had put the toe in the water on some core exposures. All clients were relatively well invested in real estate, which I guess reflected that it was a more mature asset class.
“It takes a very long time to create your perfect portfolio and evolve the portfolio, and so our main challenge was taking all the disparate portfolios that we had and trying to bring them together and leverage the comparative advantage that TCorp has through its size and scale and being able to do quite significant transactions. That was probably the biggest challenge in the early days.”
But the variety in clients also meant TCorp was able to build an investment function that was more specialised and had a much larger scale then the individual organisations on their own.
“We could evolve the spectrum of what we were looking for because we now had clients that were really much more up the risk curve and had higher risk appetites and also higher return necessities,” Buck says.
It takes a very long time to create your perfect portfolio and evolve the portfolio, and so our main challenge was taking all the disparate portfolios that we had and trying to bring them together and leverage the comparative advantage that TCorp has through its size and scale
“But at the same time we had much longer term clients that have lower risk appetites and who were much more targeted towards core assets than others. I think for TCorp it was a great opportunity that we were able to really expand the breadth of opportunities that we were looking at.”
The investment model continued to evolve not just in scale and complexity, but also in the ways to take positions in assets as TCorp embarked on a new investment framework, spearheaded by Stewart Brentnall, who joined as Chief Investment Officer in 2017.
“In real assets, we really put the platform down to look at investing in different matters. So we invested in funds, we invested directly and kind of in between through co-investments. It gave us the opportunity to really look at these assets in different types of structures and product forms to really build a diversified portfolio,” Buck says.
Buck looks back fondly on her involvement in building the direct asset and infrastructure platform for TCorp and the increasingly larger deals the fund has been involved in. But if she had to pick one element that she enjoyed most, it was when TCorp developed its partnership program and started co-investing with some of the world’s largest pension funds.
“I think the transactions that stood out are really those under the partnership model that we have begun to develop with other funds, particularly the Canadian funds,” she says.
“We had a series of airport transactions with Ontario Teachers’ Pension Plan, which were great to work on, and who were a wonderful partner to work with.
“There was definitely an appetite to do more of that and last year we added another strategic partner in Canada in a very similar manner. So I think that probably is what stands out, rather than any on-off transaction, which may be great at the time, but this really is a true partnership and a true alignment of interests.
“It also has future opportunities for the portfolio. I think, in real assets because they are long-term assets. Really finding that partner who you do know is aligned with you over the long term and that you can work with in any circumstances is fundamentally important.”
Buck left TCorp nine months ago and apart from her directorship with Australia Pacific Airports Corporation, she is also currently a director of Utilities of Australia, which oversees the investment and management of $6 billion of infrastructure investments in Australia and the United Kingdom, and has recently been appointed to the board ISPT, one of the largest diversified property funds in Australia.
She is now looking to expand her portfolio of directorships.
“I’m carefully looking for new opportunities where I feel I can add value based on my experience, but also from my perspective looking for opportunities where I can continue to learn and challenge myself,” she says.
[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.