For years, super funds and their international counterparts have been seeking better alignment of interests with their service providers, particularly funds managers. For the most part, this has centred on performance fees and investment lock-up periods. Now, some funds are exploring partnerships with their own kind as the only way to ever have a true alignment of interests. GREG BRIGHT reports on this and other likely trends to emerge from the latest Global Dialogue conference held by the Australian Institute of Superannuation Trustees.
Last year Victorian Funds Management Corporation (VFMC) joined with Ontario Teachers’ Pension Plan to bid, successfully, for a 48.25 per cent stake in Birmingham International Airport in England, in a deal worth $1.02 billion. One of the sellers was Macquarie Airports Group.
The common denominator in the bid was VFMC’s chief investment officer, Leo de Bever, who until October, 2006, had worked at Ontario Teachers, most recently as senior vice president and head of risk management. Within a few months of joining VFMC, he negotiated the largest co-investment bid by an Australian super fund-owned manager with an overseas one.
While de Bever cut short his contract with VFMC and this month is scheduled to return to Canada in a new role at another Government-owned pension fund manager – chief executive of the Alberta Investment Management Corporation – the Birmingham deal set a new benchmark in co-operation between very large funds, no matter where they are based, looking to capitalise on investment opportunities.
If the mood at the latest Global Dialogue conference, held late June/early July in San Francisco and Sacramento, California, is a guide, there will be a lot more of such deals to come. This represents both a threat and an opportunity for funds managers and investment banks, which have tended to dominate the universe of large-scale infrastructure and private equity deals in the Western world over the past few years.
For super funds, pension funds, and other pools of money governed by fiduciaries, such as most sovereign wealth funds, co-investing with their own like represents the best way to ensure a true alignment of interests, they believe. For instance, Graeme Bevans, vice president and head of infrastructure for the Canadian Pension Plan (CPP) Investment Board, says that it is impossible for a pension fund to have an alignment of interests with a commercial funds manager on the liability side of the balance sheet. “Funds have 50-year liabilities,” he says. “There’s a serious misalignment in giving money to the likes of Goldman Sachs or Morgan Stanley for investments in closed-end funds. We’re going to grow to US$1 trillion over the next 30 years, so buying and selling assets every seven or eight years doesn’t make sense for us. We are much better off to buy and own.”