- Caisse de Depot opens Sydney office with six executives
- Canadian funds compete for Asciano in year's biggest takeover
Australia has been the target of a record $25 billion in acquisitions this year by Canadian investors who are applauding the nation’s strategy of selling state assets to fund new railways, roads and hospitals.
Canadian purchases in Australia jumped more than eightfold in 2015, data compiled by Bloomberg show. Caisse de Depot et Placement du Quebec bought into an electricity grid in New South Wales state and opened a Sydney office with six executives this year. Canada Pension Plan Investment Board and the nation’s Brookfield Asset Management Inc. are part of rival groups competing for Australian port and rail company Asciano Ltd.
Australian Prime Minister Malcolm Turnbull is encouraging regional governments to sell assets and use the money to fund new projects, as tumbling commodity prices and China’s slowing economic expansion wreak havoc on fiscal revenues. The South Pacific nation, located more than 10,000 kilometers (6,200 miles) from North America, trails only the U.S. as a target for Canadian outbound acquisitions that more than doubled this year to a record $201 billion.
“We’re there to invest in infrastructure, and they are the model,” Ron Mock, chief executive officer of the Ontario Teachers’ Pension Plan, which manages about C$155 billion ($113 billion), said in a Bloomberg TV Canada interview. “They’ve figured out how to attract capital from all over the world.”
The world is looking for such models. European Commission President Jean-Claude Juncker outlined a 315 billion-euro ($345 billion) three-year development plan in January seeking to mobilize private investment instead of adding to public debt. U.S. presidential hopeful Hillary Clinton is calling for a $275 billion boost in federal spending over five years to modernize ailing roads and bridges. Canada’s newly elected Liberal government has promised to double infrastructure spending to C$125 billion over the next decade and improve an overwhelmed public transit system.
Australian Treasurer Scott Morrison, facing a budget deficit of 2.3 percent of gross domestic product for the year to June 30, is offering regions incentive payments of 15 percent of the value of any asset they sell provided proceeds finance new infrastructure. The Asset Recycling Fund was created in July 2014 with A$5.9 billion ($4.2 billion) of funding.
New South Wales Premier Mike Baird, a former banker at Deutsche Bank AG, has funded new roads and hospitals with close to A$20 billion of asset sales since 2012, including the power transmission company TransGrid and leases to three ports. Neighboring Victoria plans to sell the Port of Melbourne to help fund a A$6 billion plan to remove 50 railroad crossings.
The creativity in the Australian system should serve as a global model, bridging the gap between investors that favor mature assets and the need for riskier new infrastructure projects, Mark Machin, international head for Canada Pension, the country’s largest pension plan.
“It’s excellent policy,” he said. “They’re getting tremendous interest and tremendous value from international capital and domestic capital.”
Investing billions in Australia is less complicated than in other destinations, as the two countries share a common history and culture, are largely resource-driven and have a similar legal system, Machin said. Canada Pension has about C$6.7 billion in investments in the country, equal to 2.4 percent of its total assets. It is competing with Brookfield, Canada’s largest alternative asset manager, in a A$9 billion battle for Asciano that would be the largest corporate takeover in Australia this year.
“Australia is a market that is about as similar to Canada as you can get,” Machin said. “It’s a very easy market for us to feel very comfortable in.”
Caisse de Depot, the nation’s second-largest pension fund, was the biggest investor in a group that last month agreed to pay A$10.3 billion for TransGrid. Its real estate arm made its first direct investment in the country in April with a stake in Sydney’s Liberty Place office complex.
“Australia’s economy and government are in healthy condition,” said Macky Tall, Caisse’s senior vice president of infrastructure investments. “The Australia market has been one of the deepest markets in not only public-private partnerships projects, but also a number of major privatizations.”
Caisse de Depot will have about 20 percent of its infrastructure portfolio, or roughly C$13 billion, invested in Australia after TransGrid, he said. Tall said it was too early to say whether the investment firm would bid for the 50.4 percent stakes in two other electricity distribution companies New South Wales is planning to sell. Expressions of interest for the first of those stakes, Ausgrid, are due this month, according to a spokesman for state treasurer Gladys Berejiklian.
Canadian funds need to invest several hundred million dollars of monthly inflows from the country’s pension system, said Dominic Hudson, head of investment banking at RBC Capital Markets in Australia, who helped advise Caisse on TransGrid. Borealis Infrastructure Management Inc., an arm of the Ontario Municipal Employees Retirement System, also has an office in Sydney, while Canada Pension and Ontario Teachers service Australia by flying in staff from elsewhere in Asia and abroad.
“They need to look for a home for all that money,” Hudson said in a phone interview. “They are looking for alternative assets like infrastructure for that growth, and they can’t find those opportunities in North America alone.”