Spirit Super, a profit-for-members industry super fund with approximately $26 billion in funds under management and more than 325,000 members, will take control of GeelongPort, in a deal worth a reported $1.2 billion.
Spirit Super’s strategic asset allocation includes investing 10 per cent of the fund’s assets in infrastructure.
Chief Investment Officer Ross Barry said Victoria’s second largest port ticked a lot of boxes for the mid-sized fund. He explained that the process involved in reaching investment decisions such as this began with a thematic overlay, and in this case, included making an interesting post-COVID bet.
“Our model is to invest directly where possible,” said Barry. “We take a first principles approach to all our investments, which is to say we look at each investment on its merits to deliver on our objectives.”
“We apply a strong thematic overlay when identifying the sorts of assets we want to own. Currently, one of those thematics is a real interest in regional assets and businesses, particularly with regards the structural changes the economy will likely embrace post-COVID.
“Part of that thinking surrounds the changing future of work, but we’re also observing the disruptions to global supply chains. We think there is a real opportunity for Australia to rebuild and restore some of its old manufacturing fabric to the economy and to redevelop local supply chains. Niche assets like GeelongPort is straight down the fairway for that type of thematic.
“It has very strong fundamentals with long term leases in place. We see more it as a core asset than growth asset.”
Choice of partners is critical
Spirit Super will take a 51 per cent controlling stake in GeelongPort, with the balance to be held by Palisade Investment Partners. Without the leviathan buying power of the large managers, mid-sized funds often take on investment partners. Barry said the choice of partners is critical for these types of investments.
“We plan to own this asset for a very long time. Part of the investment thesis for us was being able to work with a consortium partner with a strong knowledge and understanding of ports. Palisade is a very experienced group,” Barry said.
“We already have a very high-quality portfolio and we’re always looking for ways to position it to outperform over a 10-to-15-year period. So when we consider the thematics I mentioned earlier, in this case a regional, post-COVID thematic, GeelongPort presented as an opportunity that fitted nicely.”
Barry maintained that larger funds don’t look at investments such as GeelongPort because it is just too small for them in the context of their portfolios.
Advantages of the middle ground
“One of the advantages we have as a mid-sized fund is that we can look at these niche opportunities,” he said. “For a mid-sized fund like Spirit, an asset like this sits right in the sweet spot because of its size, and the significant interest and level of control we will have,” he said.
“There’s a certain nimbleness to being a mid-sized fund. Spirit Super may be relatively small but we have a very experienced team.
“I think mid-sized funds like us are perhaps not as siloed as some of the big funds. We can be more opportunistic with the type of assets we consider, and we can conduct our due diligence and execute deals more quickly.”
Cost-effectiveness is often cited as the major advantage enjoyed by larger funds, but Barry felt that when it came to the investment dynamic, mid-sized funds could hold their own.
“There’s a view that the investment function of small- and mid-sized funds can’t operate cost-effectively,” he said. “I’m not convinced of that. Spirit Super has a very cost-effective investment function. The real scale benefits for larger funds tend to accrue more in the administration and IT platforms, rather than in investment.”