Growth in infra probably outpacing real estate

You’ve now raised the largest infrastructure fund ever at $14 billion, double the size of its predecessor. Were you expecting this surge in interest? And do you think this represents an extraordinary moment in time for infrastructure – or is it a sign of things to come?

Sam Pollock (SP): This has been a trend that has been developing and we can see more growth ahead – I don’t think this is by any means the apex.

What people are realising in general, and specifically with infrastructure, is that in this low-interest rate environment with high political and economic volatility, these are great long-term assets to own that create wealth over the long run.

So I think it’s a combination of those factors that makes infrastructure one of the go-to asset classes in the world today.

Infrastructure accounted for over half of the $27 billion you raised over the last 18 months across private equity and real estate. What does this mean for Brookfield internally?

SP: It’s funny you should ask that. We’ve been talking about the fact that infrastructure could one day be as large as real estate. We like both asset classes but we see the growth in infrastructure probably outpacing that of real estate just because it’s newer and continues to attract interest.

In addition to that, given that infrastructure is essentially the backbone of the economy, the opportunities to invest in it are enormous. I really wouldn’t be surprised if in 10 years’ time the infrastructure universe is as large – or even larger – than real estate.

BIF III has attracted 120 institutional investors. How does that number compare to BIF II and how many are new investors versus re-ups?

SP: So roughly one-third were existing investors and two-thirds were new investors, from which we raised roughly $6.2 billion. Not only was this the largest fundraise in infrastructure, but we did it from start to finish in nine months.

Brookfield committed $4bn to the fund. How instrumental was that in securing this record fundraising?

SP: The investment from Brookfield demonstrates a strong alignment of interests and that’s very important for our investors. But there were a number of other factors. First, we are one of the longest tenured investors in infrastructure – we’ve been investing in infrastructure for over 100 years as an organisation – and the existing management team that’s been leading the infrastructure charge for the last 15 to 20 years has a solid track record. I think the other thing that resonates with investors is our operating-oriented approach.

At the end of the day, investors have many choices as to whom they can invest with, but what they like about us is that we are not just financial investors, but that we have the operating teams to extract additional value from our investments.

BIF III has doubled in size compared to its predecessor. Will that in any way change your investment strategy?

SP: It’s the same strategy. The reason why the fund is larger has to do with the level of deal flow we are currently experiencing. For example, we invested our previous $7 billion fund in two years. For Fund III, we already have five investments totalling $3 billion.

The change in dynamic is that the size of deals that are out there are larger than they used to be – Asciano is an example, and same with our recent Isagen transaction, which amounted to about $3 billion of equity. And as has been reported, we have exclusivity with Petrobras on their Brazilian gas transmission assets, which is another large transaction.

All of these deals are very large and having the larger fund allows us to pursue them.

Most of your initial investments are in power. Do you expect power to emerge as a main focus of your portfolio? And do you have any specific sector targets?

SP: Of the first five deals, two are in renewable power generation and represent roughly half of the capital invested thus far. I would expect, based on our current pipeline of opportunities, that we will end up with renewable power generation making up around 33 to 35 percent of the fund; transportation will probably be in the same sort of range; energy infrastructure will be in the 20 to 25 percent range; the sector that will probably be a bit lower, due to the fact that it’s the most competitive these days, will be the utility sector, where returns are somewhat more compressed.