Australia remains attractive but short of opportunities

Keynote panellists at Infrastructure Investor’s Melbourne Summit said North Asian investors have developed a strong appetite for US dollar-denominated assets.

Australia’s infrastructure pipeline is no longer as transparent as it was a few years ago but investors can find the right deals if they look harder for them, delegates heard at Infrastructure Investor’s Melbourne Summit yesterday.

The country has been one of Global Infrastructure Partners’ most important markets to date, observed Robert Stewart, managing director of the US firm’s Australian franchise. “We continue to find attractive and sizable assets in Australia. The critical part is to find the right ones to pursue.” GIP manages an A$2.75 billion Australia-focused infrastructure vehicle, the portfolio of which includes Port of Melbourne, privatised in 2016.

A few years ago Australia was endowed “with a transparent pipeline,” said Andrew Day, chief executive of Hastings Fund Management. He added that the market has been changing and investors should be looking at all possible opportunities, not just “those obvious ones”.

Commenting on competitive pressure, Day said the firm generally bids a price based on its business plan for the asset. “We don’t mind losing. We wish them [the winning bidders] well,” said Day.

Dominic Helmsley, head of infrastructure equity at SL Capital, noted that the European mid-market is less heated, even if sizeable assets continue to attract much attention. Instead of seeking large-cap opportunities returning 7-7.5 percent, he said his team is looking into core and core-plus strategies in the small- to mid-cap market, with net return expectations of 8-10 percent.

The talk shifted to the American market, where nascent opportunities remain shrouded in uncertainty, even has overseas LPs wake up to them.

“There is no doubt that they [investors from Japan, Korea and China] have a very strong interest in US dollar-denominated assets, which also represent a strong pipeline. For Australian investors, it’s quite an individual issue to pursue a diversified portfolio with global exposure,” said Day.

Helmsey echoed Day’s observation on North Asian investors and added that Japanese LPs, who have been less exposed to infrastructure, are showing more enthusiasm for the asset class. “Korea has been an established market, while Canadians continue to evolve.”

Stewart doubted there was much of a difference between investors from various regions: all of them are simply looking for returns, he concluded.