The recent US summit of major industry super funds has highlighted the role of IFM Investors in expanding the offshore footprint of Australian super funds.
IFM chair Cath Bowtell tells Investment Magazine the group now sees itself as having a seat at the table with governments around the world as it steps up its global investment in infrastructure.
“Governments around the world have their balance sheets very stretched in terms of needing to invest in critical infrastructure, in the energy transition and in housing and social infrastructure,” Bowtell says.
“[IFM has] the skills and the capability and the experience to be that long-term partner to solve that problem while delivering for our members.
“Our role, increasingly, is to co ordinate that pension capital to bring it together under a coalition of voices which can engage with government and help them and us collectively problem solve.
“It is a role we are increasingly taking on with the trust and support of our owners.”
IFM was the umbrella organisation driving the US summit, which included AustralianSuper, Australian Retirement Trust, Cbus, Hostplus, Aware, UniSuper and Hesta. It has developed a strong association with the National Governors Association in the US, with many infrastructure investments decided at a state government level.
It has been a long time supporter in the US of the need for federal incentives for the use of public private partnerships to develop infrastructure in the country.
IFM and the super funds that attended the summit argued for the need for asset-recycling strategies which are used in Australia to tap into private sector investment for infrastructure.
Former US President Joe Biden’s Inflation Reduction Act was seen as providing incentives for investments by long-term pension fund capital to invest in climate projects, but investors are awaiting what will happen to the IRA under the Trump Administration, which is expected to take a different tack.
Big-ticket investment
The $230 billion IFM was set up in 2004 as the main big-ticket investment outlet for the superannuation sector, owned by more than 20 major Australian super funds, and has been on the front foot of investing in infrastructure in the US. IFM opened a US office in 2007 as it expanded its investment operations in North America, planting the first Australian industry fund flag in the US (it was not until 2021 that AustralianSuper opened its New York office).
IFM now has more than 150 staff in the country and more than US$35 billion invested in the US across listed equities, infrastructure equity and infrastructure debt. About a third of its $US75 billion in infrastructure investments around the world are in the US across more than 30 states with major assets including the Indiana Toll Road, Freeport LNG in Texas, the Colonial Pipeline Company, Buckeye Partners, Swift Current Energy, GreenGas, and data centre company, Switch.
Bowtell says IFM will continue to be interested in investing in the US, regardless of which party is in control in the White House, given its long-term investment horizon.
“The average length of an (infrastructure) investment concession is more than 90 years,” she says.
“We are thinking 20, 40, 60, 80 years out. It is not one year out or four years out.
“We work with administrations of all colours in the US and we will be able to work with this administration as well.
“We were on the National Association of Governors under both the Biden and Trump administrations.
“Municipal and state governments are also important in the US.”
Ties between government and pension funds
Bowtell says the future would see more ties between governments and pension fund capital which had the ability to make significant long term investments in infrastructure projects and also provide advice on the policies needed.
The fund recently struck a deal with Britain’s National Employment Savings Trust (NEST) which will see the fund take a stake in IFM.
“Nest adds to our credibility and capacity to our voice in [the government advisory] space,” Bowtell says.
The deal with NEST, which manages some $100 billion in assets, will see it take a 10 per cent stake in IFM, and IFM’s UK and European exposure is expected to increase. While IFM already makes investments across the world for many global pension funds, the NEST deal is a significant game changer for the manager, as it is the first offshore pension fund to buy a stake in the company. Super fund mergers in Australia mean IFM’s Australian super fund investors, which were once as many as 27, are now down to 16.
IFM currently has about half its total investments offshore, but it has been investing on behalf of a much larger group of global pension funds, which have been attracted by its global expertise in infrastructure investment. The deal with NEST, which was set up by the British Government in 2008, will give the British Government-owned pension fund much more influence over IFM’s investment direction.
NEST has plans to invest around $10 bn through IFM by 2030, mainly in infrastructure and private equity with a key focus on the UK.
IFM already has significant investments in the UK including in airports in Manchester, Stansted, and East Midlands as well as the M6 toll road, British telecoms company, Arqiva and the Anglian Water Group (AWG), one of the largest water recycling companies in the country.
In Britain, IFM is now a member of the UK government’s infrastructure task force.
“That gives us access to the policy settings that will potentially support private capital investing infrastructure,” Bowtell says.
She says IFM worked with NEST and other UK pension funds, as well as some Australian super funds, last year to develop “an energy blueprint which set out the policy settings we thought would support private capital coming in to support and accelerate the transition to net zero in the UK”.
“We need to make sure we can get the policy setting right which will attract private capital,” Bowtell says.
“Private capital is going to be required here and in other jurisdictions to address some of the national priorities.
“There is a lot of competition for capital, and we will deploy where we can get the best risk adjusted returns.
“Australia will be part of the story but not all of that story.”
IFM’s Australian assets include NSW energy company Ausgrid; stakes in airports in Melbourne, Brisbane, and Darwin; ports in Botany, Port Kembla and Brisbane; as well as Southern Cross Station in Melbourne.
National priorities
Ms Bowtell says IFM is also working with the Federal Government in Australia to deliver on some of its national priorities including investment the energy transition and housing.
“Billions of dollars will be required to fund the energy transition both here in Australia and offshore,” she says.
“We do see opportunities to invest, both in Australia and offshore to support the energy transition.
“Similarly with housing.”
“I don’t think there has been a better time for super funds to invest in housing.
“We have our toe in the water there.
“Increasing the supply of housing is an important national priority but it is also a really good investment opportunity because there is such a good demand for that increased supply.
“We’re confident we will continue to invest in critical infrastructure in the US and that the assets will continue to perform.
“Our investment teams are perfectly capable of navigating the changing policy landscape.”
Bowtell says IFM’s investments are “very much deal-based”, rather than dependant on choosing specific geographies.
“When we construct a portfolio, we are very much looking for diversification of revenue types, diversification of sector as well as geographic diversification,” she says.
Bowtell says NEST is the fastest-growing defined contribution pension fund in the UK.
“They are in a very strong growth phase and are very interested in private markets and working very closely with a fund manager,” she says.
“Taking an ownership stake, which gives them more influence over how we grow, make sense to them and sense to us.
“Part of the deal for them is that we will grow our capability in private equity and debt in the UK.
“There will be a focus on lending to UK corporates and UK infrastructure, as well as growing private equity investments in the UK.”
IFM is also expected to step up its investment in property in Australia following the acquisition of industry super fund investment vehicle ISPT last December.
Bowtell says the acquisition of ISPT, which has property assets of some $20 billion, will boost IFM’s capacity in real estate in Australia.
The deal saw ISPT chief executive Chris Chapple appointed to the role of global head of real estate for IFM and become a member of its global strategy team.
Bowtell says IFM is “well-rounded in [its expertise in] debt, private equity and listed equity in Australia”.
“Bringing in ISPT means that we’ve now added that real estate capacity to the team,” she says.
“Increasingly there are opportunities in the mid risk space where assets and investment opportunities have characteristics which are part property, part infrastructure.
“Being able to bring that team into the IFM family is an important strategic alignment.
“It will enhance both the property team and the infrastructure team.”
Bowtell says there is a new interest in property investment with some taking the view that the fall in office block prices in the wake of Covid was coming to an end
“Investors are starting to look at real estate again as an opportunity to deploy capital,” she says.
“We want to be ready to capitalize on that when investors see that opportunity.”
