Australian superfunds look offshore as domestic competition hots up

Dealmaking and fundraising activity in infrastructure has recovered strongly after a lull in 2020 due to covid-19, according to three Australian superannuation funds.

Heads of infrastructure and portfolio managers for superfunds Aware Super, Cbus and Hesta told audiences at our virtual Australia Deep Dive this week – part of Infrastructure Investor Global Passport – that there were “a lot” of opportunities in the market, both in terms of potential deals and GPs seeking to raise capital.

“It’s the busiest we’ve been for the past five or six years,” Aware Super associate portfolio manager Brent Snow said. “For the time being we’re red-lining on capacity internally, so you have to be selective in the current environment.”

Aware Super has ambitions to increase its infrastructure allocation from its current level of A$9.5 billion ($7.5 billion; €6.1 billion) to A$15 billion by 2025, and Snow said that would inevitably lead the fund to shift its focus overseas.

“We’re focused solely on Australia right now just given how much there is coming to market in the next six to nine months, but longer term we’ll have to look offshore. We want to diversify our portfolio by geography and sector,” he said.

Alexandra Campbell, head of infrastructure at Cbus, echoed this and said that Australian assets are currently “very competitively bid”.

“There is a lot coming to market at the moment. There was quite a scarcity last year, largely because a lot of GPs pushed out their fundraisings so they weren’t deploying, she said.

“Earlier on when covid-19 hit, a lot of people expected credit markets would dry up, it would be another global financial crisis… and there would be all these big infrastructure assets coming to market. That never happened. People were waiting for those things… and they seem to be coming to market now which is creating a lot of opportunity for us.”

More than half of Cbus’ infrastructure portfolio is Australian, Campbell said, a legacy of its status as a not-for-profit industry superfund that was part of the first wave of infrastructure asset investing, with a large commitment to IFM Investors’ Australian Infrastructure Fund and other domestic vehicles. This meant it would also increasingly look offshore to diversify its portfolio, having started to do direct co-investment deals offshore in recent years, such as its investment in Forth Ports.

“We’re not well-enough diversified for what currently is [defined as] infrastructure. We don’t have enough comms or digital in there, which I think is a very well-settled infrastructure asset class these days,” she said.

“It will be interesting to see if covid-19 has brought on or accelerated some changes that were already happening in the infrastructure sector – renewables are obviously a key example of that, but also the digitisation of goods and those sorts of things. “

Will MacAulay, general manager, unlisted assets at Hesta, said his fund was “absolutely” looking offshore for opportunities, as its portfolio composition was similar to Cbus in its weighting to Australian assets.

“We’ve been actively looking for opportunities internationally for several years. There’s a lot in market domestically, and a lot in market globally, and a lot of capital washing around globally,” he said.

“A core focus for us is moving that portfolio to be more in line with global opportunity sets – that Australian weighting is really an artefact of history.”

Diversity equals resiliency

Despite the desire to do more offshore, all three panellists emphasised that their infrastructure portfolios had proved resilient during covid-19, even those with exposure to Australian airports, such as Cbus’ and Hesta’s.

“Our portfolio has been well diversified. We have had some bumps in the portfolio – some of them are not as predictable as you might have thought, if you had worked through the effects of the pandemic,” MacAulay said.

“Has it held the portfolio in good stead through that time? Absolutely, and our capital has been well protected.

“Is it as diversified as I would like? You can always do more, and one aspect the last 12 months has highlighted for us is that we need to be really critical in thinking through what those correlated risk factors are or aren’t, because they’re not quite as obvious as they appear on the surface.”

The next Infrastructure Investor Global Passport get-together on 24 March for all members is headlined, ‘Has the market accurately assessed valuations?’. It features guests from MetLife, LPPI,  EDHECInfra and Arjun. On 4 March, an investor-only gathering brings together leading Canadian institutions talking through their Asian portfolios with their peers in the region, hosted by our own Daniel Kemp. To join, click here