First State Super is using its scale to directly invest in complex infrastructure deals that are out of the reach of other investors in a crowded market.
Damian Webb, head of income and real assets at First State Super, told delegates at the Conexus Financial Private Assets conference in Melbourne how the fund has grown its internal investment team from nine to 30 in one year to make such transactions.
The fund has also doubled the number of in-house lawyers to help with due diligence for unlisted asset acquisitions and it has expanded its advisory panel to help the trustee board with increased governance.
“Once you start to go direct it is infinitely more complex,” explained Webb.
The fund has started from a zero allocation to infrastructure in 2013, as it had previously followed a low fee approach to its investments. It now follows a best ideas approach across all alternatives assets with no fixed allocations.
Its priority has been to buy in Australia – the fund has been an investor in Sydney light rail, but the recent “no asset sale” victory for Labor in Queensland has been a setback and Webb said the fund may now reprioritise abroad and that one area of interest was Asian greenfield infrastructure.
Similarly, Nik Kemp, senior investment manager, infrastructure at AustralianSuper, told delegates how his team had grown to 10 to manage its directly owned infrastructure assets.
AustralianSuper is following a policy of investing directly in Australia and only through separately managed accounts (SMA) or a joint venture for international assets. The latter approach is not successful currently.
“What we are finding for an SMA is that the fund managers do not want to talk to us, they are looking to deploy their own money first,” he said. In response AustralianSuper is partnering with Canadian funds to purchase infrastructure assets globally.
Kemp said that infrastructure was seen as “the ballast in the boat” for AustralianSuper’s asset allocation, generating returns of 7-11 per cent with low volatility and as such the fund is not interested in high volatility or core plus assets.
Perry Clausen, head of global infrastructure investments, Colonial First State Global Asset Management told delegates how Europe was providing 55-65 per cent of opportunities for his funds. Out of all opportunities half were coming from corporate sales, around 35 per cent from government sales and 10 per cent from privatisations.