Springing from his chair and darting out of the conference room, where a moment ago he had wrapped up a lengthy interview, Sam Pollock is a testament to the benefits of eliminating wasted energy. Everything he does appears to have a purpose.
The chief executive of Brookfield Infrastructure Partners (BIP) is corralling his investment team one by one to pose for a group photograph. As a group, they have much to celebrate. Brookfield Infrastructure Fund II (BIF II) in October closed on commitments totaling $7 billion, ensuring the offering will go down as the largest fund the asset class raised in 2013. In mere minutes, Pollock and most – though not all – of his staff are lined up along a handrail for the take. Yanked from their desks hours before BIP is scheduled to release its third-quarter (Q3) results, the colleagues oblige and smile for the camera, knowing their boss wouldn’t have it any other way.
In the back and forth leading up to the meeting with Pollock, the question of a group shot arose more than once, stopping just short of turning into a make-or-break condition in securing his participation. It’s a telling anecdote – about both Pollock and Brookfield Asset Management (BAM), the Toronto-based organisation that he joined in 1994.
In person, affable Montreal native Pollock is sober, understated, and seemingly disdaining of showiness. In effect, he’s a model representative of the culture that’s served to propel BAM from its inception in the 1890s as a builder and operator of electricity and transportation infrastructure to its current incarnation as a publicly-traded global investment company with $175 billion in assets under management (AUM).
It’s that same ethos that’s also responsible for BIF II, the second Brookfield infrastructure vehicle following the Brookfield Americas Infrastructure Fund, which closed with $2.7 billion committed in 2010. BIF II is the second-largest infrastructure fund ever raised behind Global Infrastructure Partners II (GIP II), which last year hauled in $8.25 billion. But it’s the speed with which Brookfield’s latest infrastructure fund amassed its capital that’s unnerving.
In less than 14 months, BIF II gobbled up investor capital from US pensions such as the New York City Employees Retirement System (NYCRS), Teacher Retirement System of Texas (TRS), Maine Public Employees Retirement System (MainePERS) and New Mexico State Investment Council (SIC), as well as insurers and sovereign wealth funds (SWFs). Midway through, BIF II had crushed its $5 billion target: a regulatory filing with the US Securities and Exchange Commission (SEC) in July recorded the fund at $6.23 billion.
Pollock also points out that half of the 60 limited partners (LPs) invested in BIF II are first-time Brookfield customers. But neither the international breadth of its asset base nor the fact that the newly launched fund racked up clientele in short order is an eyebrow-raiser for Kelly DePonte.
“That doesn’t surprise me at all,” says DePonte, partner at placement agent Probitas Partners. “Infrastructure is new.
There aren’t funds out there with proven track records. Brookfield has that.”
Pollock doesn’t disagree.
“We heard from people around the world who were looking to get into infrastructure,” he explains. “We attracted people who were familiar with it and with us, but also people who were making their first investment. Brookfield has a long track record, which I think is quite enviable. Plus, this was our second infrastructure fund, so we had great support from the people in our first fund.”
At the same time, he’s encouraged by the growing reputation of the asset class among institutional investors.
“I think our success can be attributed first and foremost to there being no doubt that there’s huge interest in the asset class,”
Pollock points out. “I didn’t see infrastructure becoming this popular, certainly not back in the 1990s.”
A REPUTATION AS A DEALMAKER
Pollock is a diehard supporter of his hometown Canadiens ice hockey team. The ‘Habs’ have won more championships – 24 – than any franchise in the National Hockey League (NHL).
He’s quick to remind visitors to Brookfield Place, Brookfield’s headquarters, that the Hockey Hall of Fame is located conveniently under the building in Toronto’s sprawling ‘PATH’ underground walkway.
A chartered accountant, Pollock joined Brookfield from PricewaterhouseCoopers (PwC), rising to become chief investment officer (CIO). He also led BAM’s merchant banking effort, which would evolve into a full-on private equity business. In 2001, Pollock launched Brookfield’s first-ever private equity fund.
Shortly thereafter Bruce Flatt, who in 2002 would be named chief executive officer (CEO) of Brookfield, took over as CIO, and Pollock moved up the corporate ladder to become a senior managing partner in the company. By then, Pollock says, he recognised that a new asset class custom-made for institutional dollars was taking form.
“It really started in the 2000s, I think, when infrastructure was talked about more prominently,” Pollock recalls. “To Macquarie Group’s credit – Borealis Infrastructure [a division of Ontario Municipal Employees Retirement System] were pioneering as well – the asset class began to evolve in that sense.”
The evolution that was gathering pace in the new millennium worked in Brookfield’s favour, as it turned out.
“When I joined the company, the one thing that was unique was how we were involved in many different sectors across the economy – financial services, trucking, mining,” Pollock explains. “What was fortuitous for us was the fact that inside these businesses there were infrastructure assets, so we had exposure to them, even if they were part of a more diversified entity.
“From our standpoint, Brookfield already recognised many of the attributes of various sectors with infrastructure,” he continues. “We were already involved with renewable power; we were already involved in the transmission business. But we just didn’t describe it as ‘infrastructure’.”
By 2005, the company, now named Brookfield Asset Management, began expanding its business. Long lauded as a real estate investor, BAM would develop a ‘real assets’ platform, focusing on areas like timber, mining and core infrastructure. Pollock was put in charge.
“In 2007, we decided to carve out infrastructure as a standalone business and develop that,” he says. “We realised we had the opportunity to create a separate asset class for the company and bring in third-party capital.
“My reputation in Brookfield was I was a dealmaker. I had a hand in all the major deals we had done. I had also been looking at infrastructure on an asset-by-asset basis for a long time, before we founded Brookfield Infrastructure Partners. So it was probably logical that I head it.”
Infrastructure, like each Brookfield business, is set up to take advantage of what Pollock describes as a “matrix
“Here in North America, at the corporate level, we have CIOs for each sector whose job is to oversee the underwriting of investments in that sector – across geographies,” he notes.
For BIP, David Levenson is CIO of transportation, while Ralf Rank is tasked with utilities and renewable energy. Jim Reid, meanwhile, is CIO of energy.
“The ‘matrix’ side of it is we have a leader in each region we invest in,” Pollock says. “Each of them is focused on business development.”
Brookfield Infrastructure has 100 investment professionals globally, and Pollock asserts he has the latitude to deploy personnel from anywhere on different projects.
“If we have a large deal, we can pull in people from whatever sector or geography,” Pollock stresses. “That’s a unique thing about our business: people don’t get paid on a deal-by-deal basis like a private equity shop – everyone’s compensated from the fund as a whole; whether we do more of one transaction than another transaction will not impact them.”
REAL ESTATE HATS
By the time Pollock and his team went about launching BIF II, Brookfield Americas Infrastructure Fund was 90 percent invested and the asset class had arrived. That experience boded well when taking BIF II on the road.
“You see funds that are basically not a team, that don’t have history or haven’t been through many cycles,” Pollock observes. “The core of our being is as an investment group and the team we have on a senior level – which has been together 10 years. Few people leave us. We retain talent.”
BIF II is focused on transportation, energy and renewables and will invest in North and South America, Europe and Australasia. The fund has deployed $600 million, and its approach to infrastructure has resonated with investors.
Despite the attractiveness of the asset class, Pollock warns, “there are numerous dangers”.
“The danger can come in two categories: too many investors looking at regulated assets as ‘low risk,’ when the assets come with significant risk, particularly today with a consumer burdened with a lot of cost because of the energy policy that might have seemed wise but in the end is expensive,” Pollock explains. “The other risk we see is in patronage-based businesses, because patronage-based businesses are also operating businesses and have a whole host of challenges on a day-by-day basis. We saw that in the port sector in North America.”
That said, within the transportation sector, BIP has a “principal focus” on ports, as well as rail and toll roads, Pollock asserts.
“We’ve looked at a number of airports but we haven’t been successful in finding one that’s appropriate value,” he reveals. “We haven’t looked at passenger rail or light rail transportation (LRT). We’re probably not looking at parking. Waste is another area that people have ventured into, but it’s not a focus for us. We’re pretty down the middle.”
Shifting his focus to renewables – BIP’s biggest sector – Pollock cites unrealised promise.
“There is and there isn’t a huge growth potential in renewables,” he says. “The amount of renewables coming to market has grown, largely in technology, wind and solar. Our background has largely been in hydroelectric, where 90 percent of our investments have been made to date. Over time, we will see diversification out of hydro into wind and solar.”
As for geographic focus, Pollock acknowledges BIP will remain leery of emerging markets, as well as Asia.
“The principal reason for that is not having people on the ground in addition to our cautionary approach to new markets,” Pollock admits. “In the past, our infrastructure businesses were able to follow other areas of the organisation into a new market. In South America – Brazil, Chile – we had a long-standing entry. It was easy for us to expand a team and leverage our institutional knowledge. Similarly, in Europe and Australia, we made large real estate investments and leveraged that presence.”
While BAM is a noted ‘alternatives’ manager, Pollock cites infrastructure as being the asset class with the most upside.
“What’s exciting about infrastructure is the number of opportunities is growing much more rapidly than on the real estate side,” he says. “In real estate, there are so many managers; infrastructure is still early stage. The number of sought-after managers is few.”
That’s left BIP in a position to capitalise on growing institutional demand for infrastructure.
“There’s a shift underway. You’re going to see greater real assets allocations,” he concludes.