A US$7.7 billion blockbuster deal backed by four Canadian public pension funds to acquire Australia’s AusNet electricity network is the latest in a string of large infrastructure investments by Canada Inc in the country as they seek to ramp up exposure to low-risk, inflation-proof and stable growth real assets.
Canada’s Brookfield Asset Management led the consortium, which included the Alberta Investment Management Corporation (AIMCo), Healthcare of Ontario Pension Plan (HOOPP), Investment Management Corporation of Ontario (IMCO) and PSP Investments as well as Australia’s Sunsuper Superannuation Fund. The size of the AusNet takeover beats the of US$3.7 billion takeover of Spark Infrastructure in November by a consortium of private equity giant Kohlberg Kravis Roberts (KKR), the Ontario Teachers’ Pension Plan (OTPP) and PSP Investments.
AusNet is a large, diversified energy network business with ownership of three core regulated networks, as well as a significant portfolio of contracted energy infrastructure assets. The company’s services over 1.5 million customers across the state of Victoria and it is looking to enable renewable generation to support Victoria to achieve the state’s long-term target of net-zero greenhouse gas emissions by 2050 – a factor that Canada Inc is keen to achieve progress as funds march towards their net zero targets. The massive AusNet deal aligns with a strategy Canada’s biggest funds have pursued in recent years to snap up a broad range of opportunities arising in the Australian market, which represents an estimated 11% of their combined investment.
Canadian funds have represented a third of total sovereign capital invested in the country since January 2016 – including Australia’s own public pension funds and sovereign wealth funds, which have a combined AUM of US$1.2 trillion. They are also the funds that have established offices in Australia’s financial capital Sydney, beginning with OPTrust in 2013 with OMERS, CDPQ and CPP entering in each subsequent year. In 2021, CPP, CDPQ, OMERS and OTPP each invested over US$ 2 billion in Australia.
Canada Inc is a weighty force in global markets with combined AUM of US$1.6 trillion, of which more than 12% is devoted to infrastructure alone. AusNet brings total Canadian infrastructure holdings to approximately US$173 billion. What’s more, there are plans by some to ramp up their investments in utilities, roads, renewables, transportation and pipelines, potentially pumping tens of billions more into global infrastructure in coming years.
The Australian deals illustrate the strategy of Canadian PPFs to co-invest, drawing together their expertise and pooling capital for the benefit of Canadian savers. Yet, allocations to infrastructure vary across the funds, ranging from 1% for HOOPP to 20% for OMERS.
CDPQ’s Chief Operations and Financial Officer Maarika Paul confirmed to Global SWF that “infrastructure is going to be the portfolio where we will see the largest growth in the next 3-4 years.” The signs are that other large Canadian PPFs are following the same trend, by beefing up personnel in the asset class and paying particular attention to renewable energy.
Australia is not the sole focus of interest for Canada Inc. The domestic market represents 11% of total infrastructure investment by the funds – the same proportion as Australia. Bigger targets are the USA (17%) and the UK (13%). Notable emerging market targets are India (5%), Brazil (4%) and Chile (3%). The approach to the various markets differs, largely determined by available opportunities. In the US, CPP Investments is the leading Canadian investor in infrastructure and in September it acquired Ports America, North America’s biggest port operator, in a US$4 billion deal. Canadian interest in the UK has, however, waned although funds retain significant stakes in strategic assets such as water utilities and airports – with the funds often co-investing, demonstrating a strategic convergence similar to their Australian targets.
Yet, Australia will remain a key feature for Canadian portfolios. Global SWF’s 2022 annual report notes that Australia's energy and utilities infrastructure network is mature, but there are opportunities for growth, particularly in the fast-growing renewable energy segment. The country is expected to gradually phase out coal-fired thermal electricity generation in favor of renewables, with wind and solar power leading growth. Improvements in transmission and distribution infrastructure and battery storage capacity will also feature prominently in the infrastructure growth story. The pressure is on to improve electricity grid infrastructure to support the rise of electric vehicles, among other new household electricity requirements.