By JOYCE MOULLAKIS, SENIOR BANKING REPORTER
The unlisted infrastructure sector provides “two firewalls” against inflationary pressure, given the dominant market position of investments such as ports and electricity networks.
That’s the view of Invest Unlisted chief investment officer Jonathan van Rooyen, who also
remains bullish on domestic airport assets, despite lingering Covid-19 challenges.
Invest Unlisted – which pools investor money and distributes it across six large unlisted
infrastructure funds – is targeting $1bn in funds under management within the next five years.
That will see the fund-of-funds firm almost quadruple in size from the $270m it currently has
under management, including commitments.
Investors have been rattled in the past week after higher-than-expected December quarter
inflation-stoked debate about Reserve Bank rate rises as early as this year, and triggered sharp sharemarket moves.
Mr van Rooyen said Invest Unlisted’s exposure to 42 infrastructure assets – including the Sydney Desalination Plant, Port of Newcastle, TransGrid and Melbourne Airport – made it very diversified. The firm is also moving into direct co-investments, including offshore, and Mr van Rooyen said the asset class provided protection against inflation.
‘‘The first protection is contractual, where in the case of regulated assets such as the TransGrid business, which is NSW’s electricity transmission grid or the ‘poles and wires’, these regulated investments have full pass-through mechanisms under the regulatory regimes they operate under,” he added.
“It means that revenues in around one-third of our 42-asset portfolio increase in line with any
rise in inflation.”
Mr van Rooyen also said the business model of many infrastructure assets delivered them
“dominant positions in their supply chain” to pass on price rises to customers.
“The sector’s essential service nature enables it manage those price increases ... more effectively than a shopping mall in Ipswich.”
Invest Unlisted – formerly the Infrastructure Partners Investment Fund – allocates money to six infrastructure funds. They include the Utilities Trust of Australia, Morrison & Co’s latest
infrastructure fund, a Brookfield fund, the Global Diversified Infrastructure Fund, an AMP fund and The Infrastructure Fund, managed by a unit of Macquarie Group.
The firm provides an access point to unlisted infrastructure investments for self-managed
superannuation funds, wholesale investors, charities and family offices.
By pooling investor money it gets access to larger funds that typically have high investment entry thresholds.
The Covid-19 pandemic did have an impact, however, on Invest Unlisted’s capital raising efforts in 2020, when it abandoned an upsized $250m fundraising and its 10 airport exposures were caught in the fallout.
Mr van Rooyen said it was not surprising to see major corrections in airport valuations when
international passengers were grounded, but long term he was optimistic on prospects for
Australian airports.
“My view is that Australian airports are an extraordinary business model. Take Perth Airport,
which is the most geographically isolated capital city in the world. Unless you have 30 hours of driving on your hands, the only way in and out of WA is through Perth Airport,” he added.
“That’s why we have steadily acquired a portfolio of nine capital city and regional Australian
airports. Unlike Europe, there are limited substitutes, such as fast trains or ferries.”
The Invest Unlisted asset portfolio has a 35 per cent exposure to unlisted airports.
The IFM Investors and Global Infrastructure Partners-led $23.6bn tilt for Sydney Airport thrust the value of the gateway into the spotlight last year, and investors will vote on the bid on Thursday.
Mr van Rooyen said industry funds and “smart money” with a long-term investment horizon
were moving early on Sydney Airport, spurring a rerating in the unlisted airport sector.
But Sydney Airport chief Geoff Culbert in January expressed frustration that traffic in December remained almost 70 per cent below pre-Covid levels.
On co-investment opportunities, Mr van Rooyen noted Invest Unlisted has an extensive pipeline.
“We are working closely with a leading global infrastructure manager to acquire stakes in a
regulated gas transmission investment in the UK, and a regulated electricity transmission
business in the USA,” he said.
“By 30 June 2022, together with the AusNet transaction, we will have delivered our investors
three co-investment opportunities which are diversified across three different regulatory
regimes.”
This week, Invest Unlisted’s executed its co-investment into AusNet as part of a takeover of the group.
“That means the grade-nine teacher in Western Sydney gets to invest directly in AusNet —
alongside some of the world’s largest institutional investors,” Mr van Rooyen said.
On the firm’s target to manage $1bn within five years, Mr van Rooyen is confident growth will accelerate.
“We‘ve doubled in size, (since 2020) and we’ve just been very cautious. We haven’t been doing an aggressive capital raise so ... this has got extraordinary momentum and a strong tailwind in a volatile market,” he said.
Invest Unlisted is about to embark on a new capital raising.
While the firm has seen its performance weighed on by Covid-19, it has still returned 7.4 per cent per year since inception in 2016, compared to 5.4 per cent for its benchmark. In the year ended December 31, it returned 9.9 per cent.
Excluding the impact of the pandemic, the Invest Unlisted fund has returned 9.3 per cent
annually since inception. Its benchmark is the 10-year Australian government bond rate plus 3.5 per cent annually.
Mr Van Rooyen cited vintage risk, excessive performance fees and conflicts of interest as an ongoing challenge for the asset class, and for investors to navigate. Invest Unlisted does not charge investors performance fees.
Mr van Rooyen’s family office van Rooyen & Partners is a backer of Invest Unlisted.
JOYCE MOULLAKIS, SENIOR BANKING REPORTER
Joyce Moullakis is a senior banking reporter. Prior to joining The Australian, she worked as a
senior banking and deals reporter at The Australian Financial Review.
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