The $75 billion construction industry super fund Cbus is looking to step up its investments in green energy both in Australia and offshore, according to chief investment officer Kristian Fok. The move comes as the fund, whose chief executive Justin Arter is hoping to grow to $150 billion by 2025, develops its direct investment capabilities to manage more of its investment inhouse.
In an interview with Investment Magazine, Fok said Cbus was interested in looking at more green energy opportunities in Australia but also liked California’s well developed regulation around renewable energy. “We are looking at opportunities in that space,” he said of the renewable energy sector. The fund currently has renewable energy investments in Western Australia and California and has just bought a stake in an offshore wind farm project off the Victorian coast.
Through property development subsidiary Cbus Property, Cbus had gained confidence in making investments which could involve some development risk. “The connections with Cbus Property give us some connections and insights which means we probably have a greater appetite to take on development risk,” he said.
Renewable assets grow
Cbus has been steadily growing its renewables portfolio. In June, it announced a 10 per cent acquisition of the 2.2 GW Star of the South offshore wind project, in the Gippsland area of Victoria. The project is the largest and most advanced offshore wind project in Australia and is 45 per cent owned by Denmark’s Copenhagen Infrastructure Partners, one of the biggest developers of offshore wind projects in the world.
Fok said Cbus had been looking at a potential investment in the Star of the South wind farm project for 18 months before the deal was announced and it involved further commitments of capital as the project developed.
Cbus made its first direct investment in renewables in 2018 − reportedly for some $100 million − when it bought a major stake in Bright Energy Investments, a partnership with the Dutch Infrastructure Fund and Western Australian-owned energy generator and retailer Synergy. The deal saw the partnership takeover Synergy’s wind farms in Albany and Grasmere, its solar project at Greenough River, south of Geraldton and the 180MW Warradarge Wind Farm.
Cbus also has investments in the US in conjunction with renewable investment management specialist Capital Dynamics, buying into two solar projects in the US in 2020 through Capital Dynamics’ Clean Energy Infrastructure platform. These were a 100 per cent interest in Centinela Solar Energy, in California and a 30 per cent interest in Arlington Valley Solar Energy II, in Arizona.
He said developing offshore wind farms “sounds like a skill set that might be worth developing in Australia” which could also be exported into the region.
Fok said the Bright investment was a very different investment, as it involved partnering with the Western Australian government-owned energy supplier. He said Cbus’ experience showed it was open to working with government on major projects of national interest including moves to help meet Australia’s carbon emission reduction goals. “We are very open to working with government and government entities,” he said.
Fok said there were also opportunities to expand its renewable assets exposure in the US, particularly in California where the regulatory environment was well established. “California is pretty settled as to how it wants to structure its move to net zero emissions,” he said. “We know the framework and we know the state itself which has a fair bit of control around it.”
He said this made for a “conducive framework” for more investment in the sector- a situation which he hoped would eventually happen in Australia. “We hope it will get that way in Australia.”
Cbus was also interested in other measures to help support Australia’s transition to net zero carbon emissions. This included a partnership between Cbus Property, the City of Melbourne and some other asset owners in the area to sign a bulk purchase of renewable energy which “underpins the ability for renewable energy retailers to bring on new projects”, he said. “You don’t have to be the one actually investing in the project itself to help accelerate the commercial viability to bring on more renewable energy projects.”
Expanding internal capabilities
Fok, who has been chief investment officer with Cbus for almost a decade, said the fund had expanded its inhouse investment staff from around 15 a few years ago to around 135 today, including investment professionals and support staff.
“Over the last five years, we have moved from having a strategy which was pretty much outsourced to external fund managers to having a combination of direct investing, and building strong strategic capabilities to support that direct investing [and using external managers].”
The fund currently manages some 38 per cent of its assets directly, including Cbus Property, which makes up six per cent of its assets. Fok said the fund now used a combination of fund managers and direct investment teams in “pretty much every asset class” but the degree of internal management varied across asset classes, with equities and cash being largely managed internally.
He said the fund was upgrading its portfolio systems to allow for an increasing percentage of funds to be managed internally. “We are looking for opportunities to expand [our inhouse investment capacity] but it has to be a strategy that we think we can execute on and it needs to be a strategy where we think we can get the right people in place.”
Cbus was taking a slightly more cautious approach to new investments at the moment, given the increasing uncertainty regarding interest rates, inflation and the economic outlook as markets were currently trying to work out how much further interest rates would need to rise which was producing “volatility in the short term” said Fok.
Cbus, which has net contribution inflows of some $3.5 billion a year, was in a “sweet spot” in terms of fund size where it could afford to slow down its rate of new investments until it got a clearer picture of the market he said.
“One of the benefits of having a direct investing team in this environment is that they can be a bit more selective in how they deploy funds. Our rate of deployment is probably a lot slower than we have done in the past because the team is being more cautious. “You have to look at the characteristics of individual investments to see if you have the right protections,” he said.
“We are fortunate that our inflow is strong enough that we have to think about how we deploy it, but it is not so huge that if we are a bit more selective for a period of time it would completely ruin our asset allocation.”
“It’s a sweet spot to be in, it means we have dry powder ready for opportunities.”