Are infra and real estate happy bedfellows?

The proposed merger of IFM Investors and ISPT is the latest in a string of examples of GPs seeking to combine infra and real estate strategies.

When does a new development turn into a trend?

We might be approaching that point when it comes to mergers between infrastructure and real estate-focused GPs to create ‘real assets’ fund managers.

The latest example emerged last week, when it was revealed that IFM Investors, with total funds under management of A$211 billion ($152 billion; €142 billion), has been in discussions over a merger with ISPT, with AUM of A$22.2 billion.

If it proceeds, which is by no means a given, it would combine the two asset managers owned by Australia’s not-for-profit industry superannuation funds. The potential synergies are obvious in theory, and if done right, could help boost returns for the superfunds.

Combining the two types of real assets under one roof was also the rationale behind another recent Australian M&A deal: ASX-listed property fund manager Dexusacquisition of the domestic infrastructure equity business of AMP Capital (briefly known as Collimate Capital, too).

The firm announced in May that several of its funds – namely, the Dexus Community Infrastructure Fund, the Dexus Healthcare Property Fund, and the AMP Capital Core Infrastructure Fund – had acquired a combined 30.58 percent interest in Celsus Holding, the consortium that in turn manages and maintains the Royal Adelaide Hospital under a public-private partnership arrangement.

The presence of both real estate and infrastructure funds was intriguing, although not unheard of, with KKR deploying capital simultaneously from its infrastructure and real estate funds on the acquisition of data centre platform CyrusOne, for example.

A source close to Dexus told Infrastructure Investor that each fund still had to satisfy its own investment mandates and criteria to do the deal, but that transactions like this were one of the main drivers behind its purchase of the AMP Capital business unit, with the firm focused on the opportunities available in broader real assets.

These could look like core infrastructure assets that have some property assets, such as an airport for example, or as in the case of Royal Adelaide Hospital, a change to increase the exposure to healthcare and social infrastructure assets in a property fund.

Outside Australia, we have seen a string of Asian real estate GPs begin to focus on the infrastructure space in the last couple of years too, driven partly by synergies in the renewables and digital infrastructure sectors.

While the very largest real assets-focused GPs already manage both infrastructure and real estate strategies, what is noteworthy now is that more players in the mid-market are starting to follow their example.