TRUE Infrastructure, the Australian fund-of-funds manager launched by Hastings Funds Management founder Mike Fitzpatrick in 2020, has agreed to acquire stakes owned by AustralianSuper in two funds managed by Foresight Group in a secondaries transaction.
The firm has agreed to acquire A$15 million ($9.8 million; €8.9 million) in units in Foresight’s Energy Infrastructure Trust and a further A$15 million in units in its Diversified Infrastructure Trust. It has already completed and settled on A$5 million in each fund, with the firm now in market attempting to raise A$20 million to settle on the remaining A$10 million in each fund during August 2023.
TRUE Infrastructure CEO Peter McGregor, who was formerly the CEO of the listed Australian Infrastructure Fund managed by Hastings, told Infrastructure Investor that the firm has bridge financing facilities in place should it fall short of the targeted A$20 million raise this month.
“The response has been pretty positive and we’re encouraged by the interest in what we think is a really good story,” McGregor said.
“Because we’re acquiring these stakes at a discount to their valuation, it effectively locks in a valuation uplift once we settle on the acquisitions. Last year, we generated a return of 8.4 percent – if you assume we will continue to generate that level of return for the year ahead, this acquisition by itself will add 1.7 percent to the return for the year ahead, taking the total return to slightly over 10 percent.
“That 1.7 percent uplift is locked in – it’s unrelated to the underlying performance of the firm and is simply revaluing the discount on acquisition. We think that’s a pretty compelling opportunity.”
McGregor declined to identify the seller of the fund stakes, only stating that it is a superannuation fund that has recently been through a merger with another superfund and now needs to divest smaller stakes in funds that are non-core to its strategy.
Infrastructure Investor understands the seller is AustralianSuper, which has merged with multiple smaller funds in recent years. AustralianSuper did not respond to a request for comment prior to publication.
TRUE Infrastructure raises capital from non-institutional wholesale investors and has a three-year exclusivity arrangement to market Foresight Group’s Australian funds to that segment of the market. The arrangement was originally made with Infrastructure Capital Group and has remained in place following Foresight’s acquisition of ICG.
The fund had reached A$107 million in assets under management prior to this month’s fundraise.
‘Strong pipeline’
Fitzpatrick said returns had been solid and steady, with a 9.9 percent total return since inception in November 2020, and that the fund’s exposure to a diversified portfolio with a weighting towards energy transition assets was a “unique” selling point for a vehicle of its type. TRUE’s fund has no major exposure to GDP-linked transport assets, an unusual feature for an Australian diversified infrastructure fund.
“We set the fund up so returns are not reliant on GDP, and that is how it has performed,” he said.
As well as its stakes in EIT and DIT, the fund has a stake in Foresight’s Australian Renewables Income Fund and can deploy up to 20 percent of its capital into the shares of the listed ATLAS Global Infrastructure Fund, with the latter designed to give the fund liquidity should it need to meet redemptions from investors at short notice.
Its investments give it exposure to a portfolio of 22 assets, with the majority in the renewable energy and energy transition space.
Fitzpatrick said: “It’s a well positioned portfolio with highly defensive revenue streams. We think inflation is going to be a little harder to beat in Australia than in the US, and the way our contracts are set up, we should benefit from inflation […] through the offtake agreements. [The funds] have a strong pipeline of organic opportunities, so in solar and wind there are a hell of a lot of possibilities.”
On the possibility of investing with fund managers other than Foresight, McGregor said it was not likely in the short term.
“Whilst we have exclusivity in terms of being the wholesale distribution vehicle for the Foresight funds, that is a one-way agreement, so we are free to work with other managers. Having said that, we think there is enough opportunity within the Foresight funds to deploy all the funds we raise over the next year or two. It would be longer term before we start looking at other managers.
“But you never say never – if another manager came knocking on the door tomorrow with an opportunity that fit our mandate and our philosophy, we’d absolutely look at it. But at the moment, we’re very happy with the funds we’re invested in and see continued opportunity in the medium term.”
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