(August 26, 2013) — The CIO of Australia’s Future Fund has dismissed claims of an infrastructure bubble, and defended the price-tag on its latest purchase to a local newspaper.
“We are not in bubble territory,” David Neal told the Australian Financial Review. “The market doesn’t feel frothy or bubbly.”
Neal was speaking after the Future Fund spent A$875 million on a 30% stake in the country’s Perth airport earlier this year.
The spend raised eyebrows, as it came in at a 43% premium to an independent valuation made in June last year.
“If you are a long-term investor, infrastructure provides long-term, stable, inflation-related income flows that are valuable. A lot of assets are providing just that,” Neal told the newspaper. “We think in general the prices being paid reflect the cash flows we expect to receive.”
The A$85 billion Future Fund already owns a 17% stake in London’s Gatwick Airport, along with being part-owner of other transport hubs in Europe. Western Australia, the site of this latest airport purchase, is renowned for its mining industry and growing population. The state boasts record population growth in the country, with a 3.5% increase in 2012, according to government figures. In the financial year 2010/11, the state had the highest per capita gross state product of $93,593, which was 50% higher than the national average of $62,424.
A year ago, the Australian fund offered to buy the assets of the country’s largest listed infrastructure fund for A$2 billion (US$2.1 billion). Talking to aiCIO last year, Neal—who featured in the top ten of our Power 100 list—said: “We continue to seek opportunities to increase our exposure to quality Australian and international infrastructure assets.”
Some of the largest investment pools have stepped up their infrastructure buys in the past 18 months. In July, the once very conservative Japanese Pension Association, a federation of employees’ pension funds, joined the Ontario Municipal Employees’ Retirement System in a purchase of the gas-fired power station in Michigan.
Today, PensionDanmark, the DKK139bn (€18.6bn) Danish pension provider, announced it was helping establish a mine in Armenia with financial backing worth $62.7 million. The money is being made available to the company building the mine, Teghout CJSC, so it may purchase equipment from Danish engineering firm FLSmidth.
Torben Möger Pedersen, CEO of PensionDanmark, said the deal was killing two birds with one stone: “On the one hand, the partnership will ensure a return for our members well above the bond rate, and on the other hand it will help make more Danish export orders possible at a time when more traditional financing is difficult.”
Earlier this month, PensionDanmark announced a joint venture with Burmeister & Wain Scandinavian Contractor A/S to build, own, and operate biomass power plants internationally.
If you are an institutional investor in Australia, register for the last remaining places at our CIO Summit in Melbourne on October 30 here.
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