Q Infrastructure assets at Alberta Teachers Retirement Fund (ATRF) have almost doubled every year since it first started investing in 2011. How do you see infrastructure within ATRF's investment portfolio, and how is it performing against other asset classes?
RS: Infrastructure investments are an integral part of ATRF's portfolio. In 2009, the board of ATRF made the decision to allocate funds to illiquid assets to further diversify the portfolio and allotted 10 percent to infrastructure, 10 percent to private equity and 15 percent to real estate. Both infrastructure and private equity are handled by the Private Investments team. Once we established the team, we began building our infrastructure portfolio. To date, we have outperformed our infrastructure benchmark since we first started investing in 2011.
Q From witnessing strong fundraising and transaction activities in 2010 to today's mismatch between demand and supply in the infrastructure market, does it affect your investment plan and mandates?
RS: It does not affect our investment plan or mandates, but the mismatch between supply and demand does mean there is a lot of capital that is coming into the asset class. We are very mindful of this, and are more selective when making an infrastructure investment or committing to a fund.
Q Will you then pursue more greenfield opportunities or consider investing in developing countries?
RS: With the high level of competition for core/core-plus infrastructure assets, thereby driving down returns, we have been able to adapt our strategy to include the ability to invest in greenfield public-private partnership (PPP) opportunities. While we continue to rely on our partners to lead the development work, the returns tend to be higher in greenfield PPP opportunities than brownfield, but the time to develop these projects combined with the uncertainty of winning procurement processes leads us to selectively participate in greenfield opportunities. Once we attain a solid foundation of core/core-plus investments in OECD countries in our portfolio, we will begin to look at developing countries, or growth markets.
Q Which geographic destinations do you expect to present good investments in the next 12 months?
RS: While the North American and European markets look to remain quite hot over the coming year with more dry powder
chasing the asset class, we are still hopeful that there will be deals, outside of the trophy assets, that we'll be able to transact without compromising our returns. However, once we attain a threshold of comfort in the size and risk tolerance of our infrastructure
portfolio, we will have enough of a solid foundation to allow us to look at growth markets in both Asia and Latin America.
Q ATRF's 2011 annual report stated that “the infrastructure portfolio will ultimately be globally diversified”. Can you comment on progress and how the infrastructure portfolio will be developed in the next five years?
RS: We have come a long way in diversifying our infrastructure portfolio from when we initially started investing in 2011. Today we have over C$600 million (€452 million; $479 million) committed and invested in funds and co-investments in North America and Europe and some exposure to China and India through one of our fund managers. We look to continue to build on this momentum and focus on adding assets/fund managers in North America and Europe, but strategically pursuing opportunistic deals in other regions on a case-by-case basis to complement our portfolio.
Q Given current constraints on traditional sources of financing, institutional investors are increasingly being considered as alternative sources of financing for infrastructure projects. Will you include infrastructure debt in your investment scope?
RS: We are currently focused on pursuing equity investments and don't see any scope for infrastructure debt for our portfolio at this time.
Q What investment opportunities (such as listed funds, unlisted funds, separate accounts, direct investments etc.) are most attractive today?
RS: Currently, we continue to target a select group of investment partners with which to forge deep ties and invest on a direct basis. However, this doesn't rule out other vehicles like separate managed accounts, pledge funds, secondaries or direct investments, all of which we will review on a case-by-case basis. For direct investments, it should be noted that we will not be lead investor, unlike some of our larger Canadian peers, but, given the dedicated resources on our team, we are able to take a more active role when conducting due diligence.
Q What are your criteria for selecting a general partner?
RS: Given that we are a pension plan and therefore have a long-term investment time horizon, we are focused on building long-term relationships with about five to seven general partners globally. More specifically, we are looking to create strong relationships with a select group of partners who we are able to invest on a direct basis with. In addition, they would have a unique angle when pursuing transactions, especially in auctions, but are also able to access proprietary deal flow. Understandably, in this market, it would be difficult for a seller not to go the auction route, but we have seen some proprietary deal flow from some managers. Furthermore, we also ensure there is proper fee, carry and capital commitments by the general partner to further align goals and objectives.