Of the flurry of bids for Australian critical infrastructure that took place last year, Brookfield Asset Management’s takeover bid for publicly listed power grid owner AusNet was among the last, but not the least. Leading a consortium that also comprised Sunsuper Superannuation Fund, Alberta Investment Management Corporation, the Investment Management Corporation of Ontario and Healthcare of Ontario Pension Plan, the Canadian asset manager won over AusNet’s board of directors in November with a A$10.2 billion ($7.42 billion; €6.47 billion) equity bid that placed the company’s enterprise value at roughly A$17.8 billion.

According to Brookfield’s Sydney-based managing partner and Asia-Pacific regional head Stewart Upson, AusNet – which owns and operates Victoria’s electricity transmission network and a portion of the state’s power and gas distribution networks – effectively straddles two of the firm’s investment strategies. In addition to being a perfect fit for its open-end Super Core Infrastructure Fund, through which the initial investment is being made, the company is expected to benefit from Brookfield’s Global Transition Fund, which aims to invest further capital and accelerate AusNet’s growth.

“[AusNet] is an interesting business, a very large business, and one that we’re extremely excited to get the opportunity to invest in,” Upson says. “We like it because it offers a high-quality portfolio of diversified regulated and critical infrastructure and an opportunity to invest further to support increased renewable energy projects, the electrification of the economy and the broader energy transition.

“In this net-zero 2050 target environment we’re in now, businesses like AusNet are going to play a very important role in supporting the investment that’s required to electrify Australia to get to those 2050 goals. In addition to the initial [A$10 billion] investment we make in the asset base, we believe over the next 10 years there’s going to be another A$30 billion of capital that needs to be invested in that business to replace existing assets and also support the growth and electrification that’s required. It therefore plays into our transition investing strategy as well.”

The government’s commitment to reaching net-zero carbon emissions by 2050 has only added to the appeal of Australia’s infrastructure market, making it an even more attractive investment destination from a renewable and energy transition standpoint.

Brookfield

“One of the big focuses for us in the infrastructure group in 2022 is probably going to be Korea”

“It’s a good time to be in infrastructure in Australia and we think that’s going to continue,” Upson explains. “There’s obviously a huge amount of capital now available for the sector. People are increasingly allocating capital that might have been previously for fixed income and it’s often moving now into real assets, including infrastructure.

“We don’t think that’s going to change in terms of competitiveness but, at the same time, there are many assets that need to be built, especially given the net-zero goals, and so we think it’s going to be a very healthy market, both in terms of supply and demand.

“Australia is uniquely placed globally as one of the wealthiest countries but also one of the most heavily dependent on fossil fuels with its electricity generation. And so with [our transition fund’s] pool of capital, we think we’re in a very good place to try and advance some of the change that needs to happen in that sector and we’ll be looking at a number of opportunities there.”

Expertise meeting opportunity

Upson says understanding that every market in Asia-Pacific is different is a key part of Brookfield’s approach to investing in the region. Focusing on the firm’s areas of expertise and working out where it can add value in each market, as well as finding opportunities that overlap with this expertise, are also important.

“In Australia [the overlap] is very broad, and that’s why we’ve done so many different things [there],” he says. “The one thing we haven’t done in Australia to date, ironically, is renewable power, just because we haven’t quite been comfortable with the predictability of the market. I think that’s changing now that we’re all on the same net-zero page.”

Data centres in particular are a key focus for Brookfield in Australia and the wider Asia-Pacific region. The firm has developments in the sector underway in Australia and New Zealand, with others expected to commence shortly in South Korea and India.

“One of the advantages we have with our property development expertise is that we can apply that to things like data centres,” he says. “Across the region, we’re going out there and buying land we know is in the right spot for the large cloud players to want to base their next data centre, putting all the contracts in place for construction and partnering with the large cloud players to help that market.

“We take on the development risk and ultimately sell mature assets down the path and get good returns for those. That’s a big focus of ours and something I think we’ll be doing for a long time.”

Upson highlights China as another market of interest. However, he notes that although it has become more of a focus for Brookfield in recent years, little of the firm’s foray there has been in infrastructure due to a scarcity of privately owned infrastructure assets and restrictions on foreign ownership.

Even so, the firm has built up a significant presence in China’s renewable energy space, thanks in part to a joint venture with the country’s largest owner of industrial real estate, GLP (formerly known as Global Logistics Properties). Established in 2018, the Pufeng New Energy JV invests in solar projects for industrial rooftops.

“[It’s] something we’re rolling out on a demand basis, and it’s a portfolio that’s growing very fast now,” says Upson. “We have over 400MW installed and a strong pipeline in that business. So that’s one [opportunity] that I think we’ll continue to be able to put capital into for a very long time.

“We’re not going to invest in Indonesia or the Philippines from [our base] in Singapore and assume they’re basically the same”

“The second [opportunity for us in China] is ground-based wind and solar, where we buy existing plants that are generally just completed or relatively new that other parties are wanting to sell off as non-core. We’re building up a portfolio of roughly 100MW- to 200MW-sized plants, one at a time. And we’ve done a number of those transactions now.”

Eastward bound

He considers Japan and South Korea to be the “next frontiers” for the firm as it builds its investment teams in both countries, with offshore wind being an area of interest. In South Korea, where Brookfield is in the final stages of securing its first data centre in the country, the firm is also keen to focus on industrial gas, and specifically the pipelines and infrastructure that service domestic manufacturing.

“One of the big focuses for us in the infrastructure group in 2022 is probably going to be Korea because we think that’s a market where we will be able to invest in lots of the different projects that we like to [invest in],” he says. “It’s a market that has a familiar regulatory and legal structure. We’re building out our infrastructure team there at the moment and starting to build a pipeline for the year.”

For the moment, given Brookfield’s preference for building up expertise in the markets it seeks to invest in, Upson says the firm is unlikely to cast its infrastructure net beyond countries where it already has a strong presence and an understanding of the investment environment.

“We have a really hands-on, operational approach to our investments and that means we don’t invest in a country unless we’ve had experience in that market and we have people on the ground,” he says. “That means that we’re not going to invest in Indonesia or the Philippines from [our base] in Singapore and assume they’re basically the same just because they’re relatively close. They’re very far from the same thing. We may get to those countries one day, but we’ve got more than enough wood to chop in the North Asian markets we’re focused on right now.”

Upson believes data will remain an important investment theme in 2022 and beyond. Although he expects it to be a growing market for some time, he says it is likely to be highly priced because of the high demand for data assets.

“Data is an almost limitless growth theme in the market today [and] I don’t see that changing anytime soon. The key is obviously picking your [locations] in terms of how you invest in it and how you value it. Because of the enthusiasm around it, the prices are obviously very high if you want to get something that’s operating and stable. We’re thinking differently about how we approach that market.”

Opportunity in transition

The biggest opportunity he foresees, and a theme likely to have a major impact on the infrastructure market, is transition investing. This is something Brookfield is well equipped to focus on, thanks to its global transition fund.

“What we call transition investing is going to be really huge over the next decade or more. To date, we’ve had infrastructure funds who do all nature of infrastructure, we’ve had renewable power funds who only do renewable power [and] we’ve had impact funds who [focus on] things that are positive to the environment, the world and social good. [However], we haven’t got the large-scale capital we need that’s going to change those things that are problematic for the environment today if we’re going to get to where everyone’s targeting by 2050. That’s the capital that’s required, and that’s the opportunity.

“People are probably just starting to wake up to it now, but it’s quite an important nuance that if you want to transition assets, you’re actually going to have to buy the out-of-favour assets to be able to transition them to where they need to be and, right now, the capital to buy out-of-favour assets is extremely limited… This is going to be the largest investment opportunity we’ve probably ever seen.”