Its major pension fund and insurance company clients, such as the $15 billion defined benefit scheme of ESS Super and state insurance companies, have inflation-linked liabilities that are matched by returns from brownfield assets. The manager doesn’t run a bespoke infrastructure book, but holds the assets alongside inflation-linked bonds and property in its ‘inflation’ portfolio. Most of AustralianSuper’s large infrastructure portfolio is invested in brownfields, Findlay says. And, returns being equal, the fund would prefer a brownfield investment requiring equity for capital expansion over a greenfield development, because brownfields have earnings’ histories upon which more accurate forecasts can be made. The market for brownfield assets also offers investors exclusivity. Weaven says the financial crisis gave IFM the opportunity to buy a Belgian electricity distributor almost unopposed and at an advantageous valuation.

The manager’s recent acquisition of Polish electricity generator Dalkia was also exclusive. “We virtually had a clear run,” he says. Australian governments will find it tough to provide greenfield opportunities that can outshine these types of deals, particularly since easy debt has drained from the market and “capital has power now”. This type of access is another reason why VFMC targets brownfields. “Private investors will always prefer exclusivity – secondaries, or private deals – whereas the government wants the opposite,” Elliott says. “The competition and bidding through the PPP process does yield good results through innovation and genuine competition, and if you scrap the process altogether, you’d lose that.” But brownfield investments still entail considerable risks. VFMC staffs an internal infrastructure team to make direct investments and eliminate the cost of contracting intermediaries, such as tax and legal experts, Elliott says.

“And with these long-term assets we want to have a majority position. We want to put our people on the board. We want the right to keep the asset boring. It doesn’t make sense to be small and boring in an illiquid asset. “You need to choose your partners very carefully. But over 20 or 30 years even the best partners will change.” At AMP CI, Frost is learning the benefits of working with openminded long-term investment partners. Together with IFM, Hastings Funds Management and Transurban, the manager owns the M5 Interlink joining Liverpool in western Sydney to the city’s southeastern suburbs. It’s an example of a brownfield PPP, in which the government and a consortium of private investors are negotiating to improve the road by adding two lanes, inbound and outbound, to ease peak hour congestion.

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