Over just the past 12 months, Australian Retirement Trust has invested $6 billion in infrastructure assets. Florence Chong speaks with Michael Weaver about what’s next for the fund
Over just the past 12 months, Australian Retirement Trust (ART) has participated in the acquisition of telecommunications towers, a renewable power generation company, an airport, and other assets. ART, Australia’s second-largest superannuation fund, has invested $6 billion acquiring valuable infrastructure assets in that period.
The investments have lifted its total infrastructure assets under management to $24 billion.
Perhaps the biggest prize is a 7.5 per cent stake in Sydney Airport, the country’s largest gateway and busiest airport.
ART joined a consortium, led by IFM Investors to secure the airport in a cash bid of $23 billion, a deal that was finalised in March. The acquisition gave Sydney Airport an enterprise value of $32 billion.
Among shareholders in the consortium, known as Sydney Airport Alliance, are AustralianSuper, which has an equal stake to ART, and UniSuper, which rolled its holdings in the former listed company into a new private holding company for a 15.01 per cent interest.
The larger shareholder is the New York-based Global Infrastructure Partners with 37 per cent and the two IFM Investors’ funds – its domestic and global infrastructure funds – owning the balance.
With Sydney Airport, ART has increased its portfolio of airports to eight. Notably, it now owns stakes in some of the world’s leading airports, including London’s Heathrow.
The merger of the combined portfolios of Sunsuper and QSuper has given the two funds coverage across a wider spectrum of infrastructure assets.
In addition to Heathrow, ART has an interest in Edinburgh and Brisbane Airports, and has co-invested in Birmingham and Bristol airports in the UK with TCorp and Ontario Teachers’ since 2017.
We don’t have a fixed view that we want to internalise everything. Some of our partners are the biggest real estate and infrastructure investors in the world. You need to be careful not to cut off the hand the feeds you
Asked about the impact of the global COVID 19 pandemic, Michael Weaver, Head of Global Real Asset at ART, told [i3] Insights: “Airports are obviously challenging. They have had a tough couple of years due to COVID.”
However, Weaver adds that those airports are prudently leveraged, and consequently did not present any ‘material concerns’ during the crisis. “We invested in these assets five years ago and they are still positive for us.”
While the lockdowns and closure of international borders have had a severe impact on airport operations around the world, Weaver reasons that airports suffered during the global financial crisis in the late 1990s, but they bounced back really quickly.
Similarly, they were impacted by the September 11, 2001 terrorists attack on the World Trade Centre in New York, yet, again, air travel recovered.
On recent trips, Weaver has found airports (in Australia) to be very busy again. “We do (still) like them as long-term assets,” he says.
Inflation and Rising Rates
On rising interest rate and inflationary pressures, Weaver explains: “We know infrastructure generally will have long-term debt assumptions in the models, so are probably perhaps less susceptible to rising interest rates in the short term. But we are obviously quite conscious of inflation linkages and refinance assumptions that are in the models.”
Weaver says around 50 per cent of the fund’s infrastructure assets is in transportation including airports. Overall, he says the ART infrastructure portfolio is quite diversified.
ART owns various utilities as well as digital assets and keenly-sought after land registries in South Australia and Western Australia.
In 2017, Sunsuper was part of a consortium, led by Macquarie’s infrastructure unit and Canada’s Public Services Pension Plan (PSP) that won a bid for the South Australian land registry and management services entity for $1.605 billion. The same consortium followed up with another win in 2019, clinching the Western Australian land registry for $1.41 billion.
Its recent investments have tended to centre on digital infrastructure assets.
In one of the most significant deals, the Future Fund, Commonwealth Superannuation Corporation and Sunsuper forged a strategic partnership with Telstra to own a stake in what was then known as Telstra InfraCo, since renamed Amplitel.
The partners paid $1.28 billion for a 49 per cent stake in the business that operates the country’s largest mobile tower infrastructure with approximately 8,200 towers.
“We are interested in digital infrastructure because these investments are differentiated from more traditional infrastructure,” explains Weaver.
Last month, ART bought into a fibre network in the US in a consortium with Morrison for US$1 billion. In June, it was also part of the group that bought VICRoads in a $7.9 billion deal.
Another area is the energy sector and ART made three significant investments in quick succession.
Early this year, ART participated in a consortium, that comprised Utilities Trust of Australia, and the Infrastructure Fund to buy an additional 33.5 per cent stake in the South Australian transmission network company, ElectraNet, for $1.03 billion.
ElectraNet is South Australia’s principal transmission network, delivering electricity to approximately 1.7 million South Australians, via its 5,900-km of overhead transmission lines, across 200,000 sq km of service area.
Clearly, with double the firepower as ART, the super fund now has the capacity to participate in the bigger transactions. Weaver says: “We have always been interested in bigger investments because it makes sense. However, we are also open to investments which offer compelling risk-adjusted returns. So it is not all about size.”
Weaver is relatively certain that ART is not about to become a direct investor and compete with fund managers for assets.
“At present, we are comfortable with the smart partners we work with. They are the ones who know where the deal flow is. We have made various significant investments in the last 12 month with our partners.”
There don’t appear to be as many opportunities here as offshore,” says Weaver. “Part of the current review of our strategy is to ask ourselves. “Do we need offices overseas? Do we continue to invest with partners or look for direct investments? We have to think about how we can use our scale and market impact to get the best value for our members
One such investment is the takeover of AusNet Services, a Melbourne-based utility business, for $10.2 billion. Then as Sunsuper, the fund was one of several superannuation/pension funds, including Canadian institutions, to back Brookfield Asset Management in bringing the transaction to fruition.
Weaver names another example – ART’s recently completed investment in Seattle-based Puget Energy in Washington State. ART joined Macquarie Global Infrastructure Fund and Ontario Teachers’ Pension Plan Board (Ontario Teachers’) to jointly acquire a 31.6 per cent stake in the energy company from Canada Pension Plan Investment Board (CPP Investments).
Puget’s primary operating subsidiary, Puget Sound Energy (PSE), is the oldest and largest electric and natural gas utility in the State of Washington, serving approximately 1.2 million electricity customers and 900,000 natural gas customers.
The bulk of ART’s infrastructure portfolio is in Australia. But given the size of funds under management today (around $200 billion), the domestic market will become increasingly constrained.
“There don’t appear to be as many opportunities here as offshore,” says Weaver. “Part of the current review of our strategy is to ask ourselves. “Do we need offices overseas? Do we continue to invest with partners or look for direct investments? We have to think about how we can use our scale and market impact to get the best value for our members.”
But, he clarifies, “We don’t have a fixed view that we want to internalise everything. Some of our partners are the biggest real estate and infrastructure investors in the world.”
He adds: “You need to be careful not to cut off the hand the feeds you.”
And when a decision is made on where-to-next for the ART, he foreshadows that the decision is likely to be for the hybrid model.
[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.