Week in Review For pensions, by pensions

IFM has been remarkably successful in attracting big-tickets from US pensions, demonstrating that its peculiar ownership model and culture are resonating with neophyte investors.

“We certainly do not underestimate the high-quality due diligence CalSTRS did before making that decision. But there have been lots of other people doing the same thing and coming up with a similar decision – we just can’t talk about it. We’ve raised a lot of money over the last few years.”

Those words came from Brett Himbury, chief executive of Australia’s Industry Funds Management (IFM), in a keynote interview you can read in the September 2012 issue of Infrastructure Investor magazine.

With this week’s revelation that US pension the Virginia Retirement System (VRS) allocated $300 million of its $450 million debut infrastructure allocation to IFM, we finally got a glimpse of what Himbury was hinting at.

So far this year, IFM has raised a total of $800 million – that we know of – from just two US pensions: the above mentioned VRS and the California State Teachers’ Retirement System (CalSTRS), which wrote IFM a $500 million equity cheque earlier this year.

In CalSTRS’ case, the commitment is also one of their earlier infrastructure investments. In case you’re curious, VRS allocated the remainder of its $450 million debut infrastructure commitment to Global Infrastructure Partners’ (GIP) second infrastructure fund, which has so far raised $7.5 billion.

But what is striking about both CalSTRS’ and VRS’ commitments is the sheer size of the cheques they have written. In VRS’ case, the IFM allocation is exactly double what it invested in GIP II. As for CalSTRS’ investment, let’s just say there probably aren’t that many infrastructure fund managers out there that can boast of having bagged a single ticket of that size.

So why did these two neophyte US infrastructure investors decide to give such a large vote of confidence to IFM? If we had to guess, we’d say IFM’s unique ownership model and its “run by pensions, for pensions” culture resonates particularly strongly with first-time pension investors.

Put simply, in IFM, pensions looking to invest for the first time in infrastructure have a virtual guarantee of alignment of interests. After all, IFM is owned by 32 Australian superannuation funds and is one of the pioneers of infrastructure investment, with an 18-year track record and some A$11 billion (€9.06 billion; $11.4 billion) committed to the asset class.

It is a long-term investor managing an open-ended fund known for deploying capital patiently, which has delivered a solid 12 percent net return over the last 18 years. And last year, IFM even issued a 12.5 percent fee rebate to its 70 limited partners once it found that it had raised more money than originally intended.

It’s a great story to sell to new pension entrants to the infrastructure space, and one which has so far given IFM a very solid footing in the world’s biggest pension market.

*To read our full interview with IFM chief executive Brett Himbury, be sure to read the September 2012 issue of Infrastructure Investor magazine.