The buyout of Sydney Airport is a good case study on the benefits of private markets, ART and UniSuper say.
In February 2022, a consortium of AustralianSuper, IFM Investors, QSuper (now Australian Retirement Trust), UniSuper and United States-based Global Infrastructure Partners brokered a deal to take over Sydney Airport. At $23.6 billion, it was one of the largest buyout transactions in Australian history.
The transaction was unusual because it involved UniSuper converting its listed shareholding, which represented a 15 per cent stake in the airport, into an unlisted equity holding. This added quite a bit of complexity to the transaction, but in many ways it also put on display some of the key benefits of investing in unlisted assets.
Sydney Airport was still reeling from the impact of the COVID pandemic and the many lockdowns around the world that were part of it. Its domestic traffic fell 74 per cent in 2021 from the 2019 level before the pandemic, while international traffic was down by 95.5 per cent.
Concern over the continued viability of the airport weighed heavily on the share price.
But long-term infrastructure investors Australian Retirement Trust (ART) and UniSuper were able to see beyond the pandemic and recognised the monopolistic position of the airport as the largest international gateway in the country.
They believed the volatility in the share price was simply market noise and it would recover once the pandemic fizzled out.
Brisbane Airport, Melbourne Airport were privately held and they didn't actually suffer the same sort of write-downs that Sydney Airport did, just because the shareholder base was a lot smaller and comprised institutional investors, large institutional investors that could get comfortable around navigating through the recovery – Sandra Lee, UniSuper
Sandra Lee, Head of Private Markets at UniSuper, and Andrew Fisher, Head of Investment Strategy at ART, looked back on the takeover at the Morningstar Investment Conference, held on 21 and 22 May in Sydney.
“UniSuper was Sydney Airport’s largest listed security holder at that time. And as you know, we went through COVID, so there was a fair amount of share price weakness,” Lee said at the conference.
“The mindset is a little bit different now when Sydney [Airport] is an unlisted asset because we can take very long-term perspectives, whereas when it was listed, there was that market noise and you’ve got a very big shareholding register, so people have different levels of understanding.
“Brisbane Airport, Melbourne Airport were privately held and they didn’t actually suffer the same sort of write-downs that Sydney Airport did, just because the shareholder base was a lot smaller and comprised institutional investors, large institutional investors that could get comfortable around navigating through the recovery.”
“We took a very long-term perspective of the asset and thankfully sitting here today we’ve seen the post-COVID recovery and Sydney [Airport] will be very close to being back at pre-COVID levels.”
Fisher agreed that private markets align better with long-term investing and also allowed ART and its consortium partners to embark on a capital expenditure program to upgrade the airport.
What is really attractive about owning an asset like that privately is the ability to invest long-term. Public market reporting cycles and the process of being in public markets does become a little restrictive. People are looking at next dividend payments, factors like that – Andrew Fisher, ART
“What is really attractive about owning an asset like that privately is the ability to invest long term. Public market reporting cycles and the process of being in public markets does become a little restrictive. People are looking at next dividend payments, factors like that,” he said at the conference.
“And hopefully you can all observe this when you go through Sydney Airport on a regular basis, but there is substantial investment going into that airport right now. Could that same investment program happen with the same long-term perspective in public markets? Perhaps, but not as easily.
“So that’s the fundamental reason why we see better value being invested in it in the private space.”
Lee, who named Sydney Airport as her favourite asset, added the transaction also enabled the funds to invest a meaningful amount in one go and showed how private assets allow for greater influence on the company’s strategy and environmental, social and governance (ESG) policies.
“One of the great attractions of unlisted infrastructure, unlisted private assets, is just the ability to, firstly, take meaningful stakes in these companies, but the other key element is just the governance that it afforded. For example, we’ve got two board seats, ART is there, you’ve got one board seat,” she said.
“That ability to really influence the strategy of the company, to be close and to monitor activities as well. It’s around the governance that it affords us and the ability to influence on really key considerations around E, S and G.”
But Fisher also warned that large, private assets with monopolistic characteristics are sensitive to regulatory risk and any owner of such an asset needs to think deeply about the potential impact of any changes in regulations and engage with local and federal authorities.
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