INDUSTRY Funds Management, which is owned by 32 superannuation funds, has become the owner of the largest district heating network in the European Union following the $500 million purchase of a Polish heating network.
The deal, unveiled in Europe last night, requires EU approval and if successful would consolidate IFM's position as one of the biggest infrastructure investors in the world.
The Melbourne fund manager, which oversees $30 billion for 60 super funds, corporate super funds and US pension funds, invests one-third of the funds in global infrastructure assets, making it a mini-sovereign wealth fund.
IFM owns 12.8 per cent of Adelaide Airport, 18.9 per cent of Brisbane Airport, 20.7 per cent of Melbourne Airport and 55.6 per cent of the Darwin/Alice Springs airports. It also has a stake in the Port of Brisbane and other Australian infrastructure assets valued at $5 billion.
The Polish acquisition is the second big infrastructure deal that involves super funds in the past week, signalling renewed interest in the asset class after the heat was taken out of the sector during the global financial crisis.
On Friday, CP2, an Australian infrastructure investor, made a $2.2 billion bid for ConnectEast, Melbourne's Eastlink tollway, which runs north-south through the city's eastern suburbs.
IFM's global head of infrastructure, Kyle Mangini, said both deals showed the market was working. "CP2 has non-Australian investors joining them and so do we," he said.
The deal in Poland involves Dalkia Polska, the Polish district heating business IFM co-owns, which signed the agreement to buy 85 per cent of a heating network in Warsaw for $500 million. The other 15 per cent will be held by staff.
The purchase comes a year after IFM increased its exposure in Poland, taking its stake in Dalkia Polska to 40 per cent.
Poland's privatisation of district heating in Warsaw increases IFM's investment in the regulated district heating sector in Poland to three cities. Its market share will more than double to 25 per cent.
Mr Mangini said IFM was attracted to the asset because of Poland's strong economic fundamentals and the fact that it provides IFM's institutional investors with the potential for greater exposure to a regulated and growing energy sector. "Poland as a region has performed extremely well. It grew during the GFC and it fits with our strategy to target good core long-term assets in regions with strong economic fundamentals," he said.
Mr Mangini said infrastructure as an asset class had been accretive across all the balanced funds even through the GFC. "Even during the GFC, the operating characteristics of infrastructure assets had strong earnings, he said.
IFM has spent more than $1 billion on infrastructure assets in the past year, which included buying a stake in Port of Brisbane late last year, which was sold for $2.1 billion, and increasing its stake in Adelaide Airport earlier this year.
IFM manages funds across four asset classes - infrastructure, private equity, debt investments and listed equity portfolios.
Frequently Asked Questions about this Article…
What did IFM buy in Poland and how much did the Warsaw district heating deal cost?
IFM, via its co-owned business Dalkia Polska, signed an agreement to buy 85% of a Warsaw district heating network for US$500 million. The remaining 15% of the network will be held by staff.
Does the Polish heating acquisition need regulatory approval and what would it mean for IFM if approved?
Yes — the deal requires EU approval. If approved, IFM would become owner of the largest district heating network in the European Union and would substantially increase its regulated energy exposure in Poland.
Who owns IFM and how large are the funds it manages?
Industry Funds Management (IFM) is owned by 32 superannuation funds. The Melbourne-based manager oversees about US$30 billion on behalf of 60 super funds, corporate super funds and some US pension funds.
How does the Warsaw deal fit IFM’s global infrastructure strategy?
IFM invests roughly one-third of its funds in global infrastructure assets and targets core, long-term assets in regions with strong economic fundamentals. IFM’s global head of infrastructure said Poland’s growth and a regulated, growing energy sector made the heating network an attractive fit for that strategy.
How does this acquisition change IFM’s presence in Poland’s district heating market?
IFM increased its exposure in Dalkia Polska to 40% a year ago, and this Warsaw purchase raises its investment in regulated district heating to three Polish cities. The deal will more than double IFM’s market share in Poland to about 25%.
What other recent infrastructure moves have Australian super funds and IFM been involved in?
The article notes renewed interest from super funds: CP2 made a US$2.2 billion bid for ConnectEast (Melbourne’s Eastlink tollway). IFM has spent more than US$1 billion on infrastructure in the past year, including a stake in the Port of Brisbane (a deal referenced at about US$2.1 billion) and increasing its stake in Adelaide Airport.
What Australian infrastructure assets does IFM already own stakes in?
IFM holds stakes in multiple Australian airports and ports: 12.8% of Adelaide Airport, 18.9% of Brisbane Airport, 20.7% of Melbourne Airport and 55.6% of the Darwin/Alice Springs airports. It also has a stake in the Port of Brisbane and other Australian infrastructure assets valued around US$5 billion.
Why are infrastructure assets like district heating attractive to investors and super funds?
According to IFM’s infrastructure head, infrastructure has been accretive across balanced funds and delivered strong earnings characteristics even through the global financial crisis. Regulated assets such as district heating can offer predictable cash flows, long-term returns and portfolio diversification — reasons cited for investor interest.
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