(August 24, 2012) – Australia’s sovereign wealth fund has reached a deal to acquire all of the assets belonging to an infrastructure investment firm, including stakes in airports in Perth, Melbourne, Queensland, and Germany.
“Australian infrastructure assets are attractive to the Future Fund because of their strong correlation with Australian economic growth, inflation protection and relative high levels of earnings certainty,” said David Neal, the sovereign wealth fund’s chief investment officer, in a statement. “These characteristics provide a strong fit with the fund’s mandate to achieve high, risk adjusted returns over the long term.”
The $2.08 billion bid represents a 22% premium on the most recent closing price of Australian Infrastructure Fund Ltd., which trades on the Australian Securities Exchange. The Future Fund has already more than doubled its allocation to infrastructure over the last three years, from 2.5% to 5.6% of the $80 billion fund.
“Over the last five years, the Fund has been building its Tangible Assets program. The infrastructure program is part of that and is now valued at over $4.3 billion,” said Neal. “We continue to seek opportunities to increase our exposure to quality Australian and international infrastructure assets.”
The deal centers on a number of airport assets, including a 30% stake in Perth airport, 12% in Melbourne’s airport operator, 49% in Queensland Airports, and 5% of Athens and Hamburg airports. The Future Fund, meanwhile, already owns 17% of Melbourne Airport.
With low volatility, long-term returns and a (disputed) reputation for inflation hedging, infrastructure is an attractive asset class for major funds at the moment. As federal stimulus money dried up, policy experts have called on the US government to encourage foreign sovereign wealth funds, such as the Future Fund, to invest in US infrastructure. American public funds already allocate largely to domestic projects, while Canadian pensions have taken a liking to Australian infrastructure.
“In general, pension funds and institutional investors are investing in infrastructure because of the profit profile: it’s got very stable yields,” Rich Nuzum, Mercer’s head of United States investments, told aiCIO in January. “If you’re a long-term investor who doesn’t need a lot of liquidity, it’s a very attractive investment, we think…Institutions who are willing to invest in infrastructure globally, we think, are going to continue to get very attractive returns as they have in the past.”