Stuff.nz – Business Day: Big demand for Aussie infrastructure. Tim Binsted. 14 April 2014
Australia is about to be hit by a wave of international capital bidding for A$110 billion (NZ$119b) worth of infrastructure assets set to be privatised in the next five or so years, according to HRL Morrison & Co investment director Paul Newfield.
Last year a group of Australian super funds alongside the Abu Dhabi Investment Authority forked out A$5.1b for Port Botany and Port Kembla, while Canadian pension fund La Caisse de dépôt et placement du Québec, paid A$1.4b for a stake in Port of Brisbane. There is more to come.
“The Canadians are here competing aggressively for infrastructure, but I would say they are the first of a wave. There’s A$30 trillion of pension money in the top half-dozen pension markets, and pension funds are currently, on average, 2 to 3 per cent invested in infrastructure. That will grow to 10 per cent over time,” Newfield says.
Founded in New Zealand in 1988 and then in Australia in 1994, Morrison manages A$6b worth of infrastructure assets for a handful of big superannuation and sovereign wealth funds, including Australia’s A$97b Future Fund and the $25b New Zealand Superannuation Fund.
The firm is the creator and manager of the A$1.2b listed infrastructure fund Infratil and also created the nucleus of the Australian Infrastructure Fund, which the Future Fund privatised for A$2b in 2013.
Morrison has more than 40 investment professionals and about 6500 staff working for the businesses it manages. These include Wellington Airport, energy retailers Lumo Energy and Perth Energy, NZ Bus and renewable energy group Trustpower.
Newfield said there are a lot of opportunities in Australia, given a A$300b infrastructure deficit, A$110b of prospective privatisations and a A$30b pipeline of public-private partnerships.
But he said Morrison tends to stay away from big auctions for “trophy assets”.
Morrison chief executive Marko Bogoievski, a former chief financial officer at Telecom New Zealand, said his firm likes complex assets that require significant operational expertise and do not attract large, low cost of capital players to auctions.
“We try to find sectors and management teams that we like and trust. If you can get an internal pipeline of ideas going then the auction process becomes less relevant,” he said.
Morrison has a partnership with Leighton Contractors in Australia that gives the firm first bite at equity on Leighton’s PPP construction deals.
Morrison and Leighton are part of a consortium in the final bidding round for Melbourne’s East-West Link.
Final bids for the 18-kilometre road connection, which is a A$6b to A$8b project, close on April 28.
Morrison executive director Mark Mudie, who heads up the firm’s PPP fund, said Australia is unique in terms of the large-scale PPP deals the market consistently offers.
“In Australia you get these big outliers like the Victorian desalination plant and the East-West Link. There’s a huge opportunity in PPPs as an investment class. There’s always a bit of noise about the need to fund more projects and concerns about capital. But we find there is no shortage of people willing to participate,” Mudie said.
Morrison invests to own and manage assets into perpetuity, but it has very flexible mandates. In 2010, the firm snapped up Shell’s New Zealand distribution and retail assets for $420 million, rebranded it Z Energy, reset the strategy and then floated the business last year in a $1.4b IPO.
Morrison & Co still owns 40 per cent of Z Energy. The firm has delivered total shareholder returns of 18 per cent a year over the past 20 years.