Core infrastructure assets have provided Cbus with stable income for many years and provided the base to now venture into higher risk, greenfield projects
Cbus Super has curated a $13.2 billion infrastructure portfolio designed to provide stable, long-term returns, while also positioning the fund for new opportunities in emerging sectors such as renewable energy and digital infrastructure.
The fund’s infrastructure strategy has paid off over the long-term. In the most recent financial year, the portfolio delivered an annual return of 10.8 per cent, comfortably outperforming the Federal government’s Your Future, Your Super performance benchmark.
For Cbus, the results are a reflection of the defensive nature of infrastructure: assets that are monopolistic, capital-intensive, and difficult to replicate.
“We know that airports, seaports, and transmission networks are the type of assets that are unlikely to be replaced,” Jordan Kraiten, who joined Cbus Super from Hostplus to head the super fund’s infrastructure unit in 2023, says. “They are monopolistic assets, and they are few and far between.”
We know that airports, seaports, and transmission networks are the type of assets that are unlikely to be replaced. They are monopolistic assets, and they are few and far between
The bulk of Cbus Super’s portfolio is invested in three open-ended funds: the IFM Australian Infrastructure Fund, the IFM Global Infrastructure Fund, and the Utilities Trust of Australia (UTA), managed by Morrison & Co. Together these provide exposure to traditional infrastructure assets, including airports, toll roads, seaports, and regulated utilities.
Core assets account for about 66 per cent of Cbus’s portfolio. Holdings include Sydney, Melbourne, and Perth airports, Forth Ports in the UK, NSW Ports, the Indiana Toll Road in the United States, and energy distribution networks, including Ausgrid, Transgrid, and Buckeye Partners.
Alongside these, co-investments make up roughly a quarter of the portfolio, giving Cbus a more direct stake in assets held by its fund managers.
Recycling Capital Back into the Portfolio
Cbus entered infrastructure more than two decades ago through the IFM Australian Infrastructure Fund. IFM Investors — partly owned by Cbus and other industry super funds — has since grown into one of the world’s largest infrastructure managers, with more than $200 billion under management globally.
Despite the long-term, buy-and-hold nature of infrastructure, assets do occasionally change hands. The approach, Kraiten notes, is usually to recycle capital back into the portfolio rather than distribute realised gains.
The Utilities Trust of Australia (UTA) provides a recent example. Last year, it sold a 15 per cent stake in Perth Airport to AustralianSuper for more than $500 million, and more recently sold a 10 per cent interest in Transgrid to Singapore’s GIC for around $1 billion. The proceeds were reinvested.
“Transgrid is such a large asset and its growth potential is significantly,” Kraiten says. “By selling down a portion of the equity, UTA freed up capacity to reinvest in the network while still retaining a meaningful stake.”
Ongoing Value Creation in Real Assets
The attraction of infrastructure for long-term investors is straightforward: these are capital-intensive businesses with high barriers to entry.
Airports require new runways, terminal expansion and upgrades to accommodate passenger growth. Ports and toll roads demand continuous investment in technology And regulated utilities face multi-decade capital programs to upgrade and expand networks.
For investors like Cbus, this creates an ongoing cycle of reinvestment and value creation. “That’s what makes them attractive to long-term owners,” Kraiten explains. “You can always reinvest to enhance the value.”
Cbus is not content to remain purely in traditional assets. The “new wave” of deployment is aimed at complementing the core portfolio with exposure to sectors driving the energy transition and digitalisation, Kraiten says. These assets are often held in close-ended funds, with a finite term, of 10 or 15 years.
Kraiten describes these as a way to “complement open-ended exposures with more core-plus and value-add strategies in closed-ended vehicles.”
That includes renewable generation assets, data centres, fibre networks, and spectrum. While not considered “core” today, some are rapidly evolving into core-like assets.
Renewable energy generation can become core-like if you have 15-year contracts,” Kraiten says. “And with data centres, you’re unlikely to build one speculatively. They’re tied to pre-leasing agreements, which makes them increasingly core-like as well
“Renewable energy generation can become core-like if you have 15-year contracts,” Kraiten says. “And with data centres, you’re unlikely to build one speculatively. They’re tied to pre-leasing agreements, which makes them increasingly core-like as well.”
Around 43 per cent of the portfolio is invested in Australia, with the US accounting for 24 per cent. “We’re obviously seeing a lot of growth in the US,” Kraiten says. “But we are looking at our exposures there with a more critical lens.”
The IFM Global Infrastructure Fund, which Cbus invests in, has attracted significant commitments from US pension funds. “They are investing in their own backyards and benefiting their members by owning quality assets, such as the Indiana Toll Road,” he adds.
Europe is also a growing market for the fund. In 2018, Cbus partnered with Aware Super and the UK’s GLIL Infrastructure to acquire a stake in Forth Ports, which operates seven ports in Scotland and one in London.
Venturing into Greenfield Projects
Stable income from core infrastructure has given Cbus the confidence to venture into higher-risk greenfield projects. The most prominent is the Star of the South, Australia’s first proposed offshore wind farm. Located off the coast of Victoria, the multi-billion-dollar project is being developed with Danish firm Copenhagen Infrastructure Partners (CIP). Estimates suggest the final cost could reach $10 billion.
Progress has been slower than expected, reflecting the challenges of pioneering a new industry in Australia. Offshore wind is common in Europe, but Victoria’s project would be the country’s first.
“Australia doesn’t yet have offshore wind, but we believe the landscape is suitable. These projects are complex, costly, and require social buy-in, but globally they’ve been delivered successfully,” Kraiten says.
Australia doesn’t yet have offshore wind, but we believe the landscape is suitable. These projects are complex, costly, and require social buy-in, but globally they’ve been delivered successfully
The Victorian government is expected to hold its first offshore wind auction in the first half of next year, tendering two gigawatts of capacity. If the state becomes the largest off-taker, it will effectively set the clearing price for Star of the South’s output.
“We believe, we’re the most advanced of the parties that were granted licences, so we’re well placed for the auction,” Kraiten says.
Beyond the financials, Kraiten stresses that Star of the South is about more than just returns. “We understand the challenge facing Victoria and Australia as we transition away from coal-fired generation and acknowledge the role that offshore wind could have in replacing it”.
Cbus and CIP are working to contain development costs and manage equity exposure until the project’s viability is clearer. “Our focus now is to minimise costs at this stage so that we’re not putting too much equity in upfront,” Kraiten explains.
When asked whether he had any second thoughts about the investment, Kraiten is unequivocal. “I wasn’t at Cbus when the decision was made. But even if I was, I would have made the same call: to support the project.”
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