Infrastructure has received an influx of capital in recent years but Aware Super’s head of the asset class, Mark Hector, says the fund is still prepared to be an early mover in some subsectors and harness alpha for members.
Aware last week made its first infrastructure investment out of its London office – a minority stake in bandwidth and data centre connectivity company euNetworks as a part of a €2.1 billion ($3.4 billion) equity recapitalisation via a vehicle led by real asset manager Stonepeak.
This has taken Aware Super’s infrastructure portfolio to approximately $19.5 billion, accounting for 11 per cent of the overall portfolio.
Aware Super infrastructure portfolio sub-sectors
| Registries | 25% |
| Digital assets | 22% |
| Energy transition and renewables | 17% |
| Transport | 14% |
| Agriculture | 10% |
| Others (utilities, social infrastructure etc) | 12% |
Source: Aware Super
Hector says digital assets and the energy transition are two big sub-sectors for Aware, but acknowledges that many institutional investors also have their eyes on the same thematics.
“There has been a wall of capital that’s invested in some of those more vanilla asset classes [in infrastructure], and associated with that, the returns are generally lower,” he tells Investment Magazine.
“Our job [is] not just focused on absolute returns for members, but we’re trying to generate the best relative returns for members – relative to peers and relative to benchmarks.
“So we do challenge ourselves to find some alpha and some better risk returning opportunities, [have] a willingness to be an early mover into new asset classes, and be willing to go up the risk spectrum a little bit where we can appropriately price that.”
Hector says one such investment is Birdwood, a small-scale distributed solar and battery platform based in Australia.
“We think that doing a series of smaller deals within a platform over a period of time can actually generate some really good, diversified returns compared to the utility-scale deals that we often look at,” he says.
Due to Aware’s scale, it doesn’t make sense to put in the same amount of due diligence for these smaller deals that are typically only in the $10 to $30 million ballpark, Hector says. But finding the right partnership to establish the platform could solve a lot of those issues.
Another of Aware’s sustainable infrastructure platforms is the US-based Generate, which Hector says has a “couple of thousand” smaller deals that are being sourced and managed by Generate’s own management team.
“When you do enter into an aligned relationship with some really clever founders that have their own management team and are acting as a very active shareholder, you can actually build out these platforms over time in a resource effective manner,” Hector says.
“They can actually generate some really good returns, if you can come up with a scalable model.”
Aware Super has had a profile boost in the UK and in Europe during its office launch, thanks to fund executives’ highly-publicised meeting with King Charles III at a Buckingham Palace reception, and conference appearances alongside former Chancellor Jeremy Hunt.
The latest euNetworks deal is led by senior portfolio manager Katya Romashkan, who’s one of the three London-based people in the infrastructure team. There’s a plan to hire at least one more person in FY25, and to expand the team in Australia too, Hector says.
He says the fund is quite comfortable with taking negative control stakes and partnering with other pension funds or GPs in Europe at the moment, until the fund gets a better feel for the markets and looks to become a lead investor over time.
“We need the size of the team to increase to a requisite level as well, so it’s able to stand alone a bit more, rather than just relying on support from Australia,” he says.
“As an Australian investor, we have tax advantages versus foreigners. We’re a trusted owner for highly sensitive infrastructure assets as a local partner, and we’re part of the Five Eyes network.
“We’re culturally well sought-after partners [domestically].
“But…there’s competition in Europe, there are other sources of capital as well, so we look forward to continuing building a brand that we think has already been enhanced over there.
“We’re in a very lucky position that we’re one of the larger funds within Australia that continues to get bigger, both organically and through M&A activity. So we do have something to offer.”
