Stewart Brentnall, TCorp

TCorp has teamed up with H2O Power and its owner PSP Investments, one of Canada’s largest pension funds, in a deal that will see the investment arm of the NSW government own a 49 per cent stake in eight hydroelectric generation assets based in Ontario.

H2O Power, the third largest provider of hydroelectric power in Ontario, is a wholly owned private asset within PSP Investments which has never publicly disclosed the power company’s value.

TCorp chief investment officer, Stewart Brentnall, declined to disclose the price they paid but he said it was “material” in the context of a fund with $107 billion in assets under management.

“This renewable energy infrastructure investment allows us to expand our global investments, further diversify risk and provide positive, sustainable returns over the long term, and we are keen to do more in the area of renewable energy.” he said.

The investment chief said the transaction is exactly the sort of opportunity TCorp was looking for, that is regulated assets with very strong, long-term contracted cashflows that offer solid, consistent returns.

“The returns approximate an equity return but don’t reflect the full equity levels of risk,” Brentnall said.

He added that TCorp generally doesn’t participate in public auctions as there was no particular advantage. “Consequently, a market clearing price may or may not suit our needs and the compressed time line often experienced with public auctions may not suit our operating model,” he said.

Instead, his strategy is to approach industry peers who want to sell part of an asset to a partner with aligned values and horizons privately. TCorp is able to source deals that never get to market, via this approach.

“Clearly individual private asset prices have been bid up over the last few years with the industry’s reach for yield – and a lack of willingness to leave money in cash – but there are still good opportunities around and we are confident we can find others,” he said.

According to Brentnall, prices for unlisted assets have still not got too toppy when we are able to leverage peer partnerships and access quality assets with long-term aligned investors.

“We find the right price and mechanism that suits both of us,” he added.

This is the second time TCorp has forged this kind of partnership – the first one was with Ontario Teachers Pension Plan two years back. In 2017, TCorp and Sunsuper each acquired 15 per cent of the pension fund’s stake in Bristol Airport and Birmingham Airport leaving it with a 70 per cent holding.

Currently, TCorp has about $12 billion or around 11 per cent of its funds allocated to real assets, largely in infrastructure and property, with plans to increase its allocation in coming years.

Brentnall thinks while global economic conditions remain benign, investment returns will be modest, ie lower than in recent years. “We don’t see inflation going up significantly over the next few years,” he said. “In fact, central banks are struggling to maintain inflation within the lower bounds of what most of them are targeting.”

He expects to see single-digit returns for equities and “extremely modest” returns for fixed income “It is hard to see continued strong positive performance from bonds given the extremely low current yields,” he added.

Patrick Samson, managing director and head of Infrastructure Investments at PSP Investments said they “look forward to the next phase of H2O Power’s development alongside TCorp.”

“TCorp is a responsible investor, fully committed to stewardship, and aligned with PSP’s long-term investment horizon and commitment to responsible investing and upholding high ESG standards,” he said in a statement

Assets in the Canadian portfolio have been in operation for over 80 years and facilities have undergone a recent major refurbishment and upgrade to ensure they continue to be maintained as perpetual life assets. There are no plans for changes in reservoir management or operations, according to the statement.

Elizabeth Fry is the editor of Investment Magazine's digital platform. Fry has been a financial journalist for more than 25 years and has written for a number of publications, including CFO, The Financial Times and The Australian Financial Review.
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