“Between 2010 and 2012 we will see some good opportunities emerge because the Government won’t be able to fund what it wants to do on its own,” Clarke says. “We’ll probably get into PPPs … The Government has said that there has not been enough investment in infrastructure and the 2009 Budget recognised that.” ICG may also look offshore for assets for the first time. The firm has maintained a close relationship with ANZ Bank, which probably has the best network in Asia of any of the big four Australian banks. “We’re a big customer (of ANZ) and continue to work closely with them,” Clarke says. “We keep looking at Asia and elsewhere.” Fallick says, though, the Australian investor focus remains. The firm is not seeking investor funding from offshore. “We have strong relations with local investors,” he says. “If we see that there are bigger assets that might require some offshore investment then we’ll look at that. But our focus is on providing infrastructure opportunities for super funds.” ICG speaks for 22 super funds as clients.
Clarke says that a “mature” diversified infrastructure fund, such as ICG’s, would have about 12 investments, totalling about $2-2.5 billion in value. But in the past couple of years or so, the staff of many big pension funds around the world have looked at the idea of “clubbing” their investments, whereby they will form their own syndicates of two, three, or four investors for a particular asset, such as an airport or toll road. They have a few hurdles to jump in order to do this. Firstly, the pension funds need to have the wherewithal to assess the investment, with or without investment banking advice. Secondly, the funds need to be able to present a cohesive voice in negotiations. Thirdly, they need to be able to manage the asset on behalf of the syndicate and/or monitor the external manager’s performance. Fallick believes that “going direct” with infrastructure investments may well be the next big risk for super funds. “It may well lower the average management fee that’s paid,” he says, “But that doesn’t mean that it’s a sensible idea.
There are all sorts of risks which need to be analysed. And the best way to approach those is if your interests are aligned with the professional managers that are involved.” In this new world of investment post-GFC, where asset allocation has taken on a new meaning and all asset classes are being reassessed for their positions in a portfolio, the questions surrounding unlisted assets are numerous. There’s the liquidity issue, of course, but then the correlations with listed assets turned out to be a bit of a surprise during the crisis, at least for some. And then there’s the fees. Fitzpatrick believes that over the next five years or so, there will be an “investor-led control” of investments in general. He says that while there will be some clubbing at the big end, there will also be a need for knowledge of all investments. What this means, he says, is that the people with the knowledge will need to enter into true partnerships with the investors. “You’ll need to have a long-term alignment with the interests of the super funds. You’ll need to have continuous dialogue and you’ll need to be continually proving your expertise.”
