OPTrust: Infrastructure is ‘here to stay’

Despite high valuations and increased competition, the Canadian pension's head of infrastructure remains optimistic about the appeal of the asset class.

Valuations are perhaps hitting record levels, fierce competition for deals may be hitting record levels. But a key observer of global infrastructure markets keeps faith that the asset class's future remains a resolutely bright one.

“I don’t think we’ll see a big blow-up that will shock the system and send private capital running for cover,” said Gavin Ingram, managing director of OPTrust’s private markets group and global head of infrastructure. “The asset class is here to stay, the capital is here to stay,” he stated emphatically.

His optimism, shared with Infrastructure Investor during an exclusive interview, seems well justified given the steady growth and consistent double-digit returns the Canadian pension fund’s infrastructure programme has delivered since its launch in 2006.

OPTrust's infrastructure portfolio, which comprises 14 investments valued at C$2 billion (€1.4 billion; $1.5 billion) and accounting for approximately 12 percent of its total assets under management, generated a net return of 48 percent for fiscal year 2014.

“A lot of it is Porterbrook,” Ingram acknowledged, referring to the UK rolling stock company in which OPTrust invested in January 2009 alongside a number of partners including iCon Infrastructure and Antin Infrastructure Partners, and which it exited along with its co-shareholders last October for an undisclosed sum.

But with OPTrust’s infrastructure portfolio delivering an average annual net return of 18.9 percent, it is evident that last year’s performance was no “flash in the pan,” reckons Ingram.

The Porterbrook investment also illustrates a key component of OPTrust’s strategy: with C$17.5 billion under management, the Canadian pension fund is significantly smaller than some of its peers.

“We’re not the biggest guy – our programme doesn’t lend itself to that – but we find our way into a lot of these transactions,” Ingram explained. Other examples include Spanish transportation concessions company Globalvia, in which OPTrust, along with Dutch pension PGGM and the UK’s Universities Superannuation Scheme (USS) invested a total of €750 million in 2011. The three institutional investors now hold bonds that can be converted into Globalvia shares.

“Everything we do, we do with partners,” Ingram said, explaining how OPTrust has been able to get several large-scale, high-profile transactions under its belt.

A more recent example is InfraREIT. In 2010, OPTrust partnered with US energy company Hunt Power, Japanese trading house Marubeni, and US insurers John Hancock and TIAA-CREF to create the Electric Infrastructure Alliance of America (EIAA) and the Gas Infrastructure Alliance of America (GIAA), which had a combined $2.1 billion of capital available to invest in the development and acquisition of electricity and gas transmission and distribution assets in the US. Both were set up as real estate investment trusts (REITs).

Last January, the company’s owners successfully floated InfraREIT on the New York Stock Exchange, offering 20 million shares of its common stock at $23 per share.

In June, OPTrust announced it would be financing – along with Switzerland-based Partners Group, UK-based developer Renewable Energy Systems (RES) and US’ General Electric – Ararat, a 240-megawatt (MW) wind farm estimated to cost €450 million. Once completed – the target date for commercial operation is 2017 – Ararat will be Australia’s third-largest wind farm.

“We’ve kind of flown below the radar and haven’t been splashed across the front pages of trade magazines and newspapers, but we’ve been very busy,” Ingram said.

Founded in January 1995, OPTrust, also known as OPSEU Pension Trust, administers the OPSEU pension plan and is responsible for investing the plan's assets to support the cost of members' and retirees' pension benefits.

The pension plan is jointly sponsored by the Government of Ontario and the Ontario Public Service Employees Union (OPSEU). It is a legal trust that exists at arm's length from both OPSEU and the government.

To read more about OPTrust’s strategy and investments, don’t miss the keynote interview of our September print issue.