Loading summary
Transcript23 lines
- [00:03]
A
Hello, I'm Daniel Kemp, APAC Editor, Private Markets at PEI Group, and welcome to the Infrastructure Investor Podcast. In today's episode, I sit down with infrastructure investors, APAC Real Assets reporter Tom Taylor to discuss the recent Infrastructure Investor Network Australia Forum held in Melbourne at the end of October. The event saw all of Australia's infrastructure investment heavyweights gather to discuss the relative attractiveness of deploying capital down under. And we also heard from a group of Australia's largest superannuation funds about how they're approaching the asset class, including more investment overseas. The Australia Forum was the last in a series of Infrastructure Investor Network events across the Asia Pacific region this year, which also featured stops in Tokyo, Seoul and Singapore. Tom and I discuss all these events too and take the temperature of the APAC infrastructure market. Hello, Tom. Welcome to the podcast.
- [00:57]
B
G', day, Dan. Good to be here.
- [00:59]
A
It's good to be here with you too, at the end of a very busy event season for the Infrastructure Events team at pei. Let's start with our most recent event, the Australia Forum, which was held in Melbourne on October 29 quite recently. So Tom, you were moderating the keynote panel there, which featured the likes of Quinbrooke, Stone Peak and Digital Bridge, as well as Unisupers head of private market Sandra Lee Unis Unisuper being one of the biggest super funds in Australia. What observations came out of that and what did it tell you about the state of the infrastructure market in Australia at the moment?
- [01:32]
B
Yeah, so one of the things that came through most clearly on that panel was a big emphasis on geopolitics. I'm sure that's not something limited just to Australian investors, but that was definitely the hot topic of this panel. So lots of discussion around the. The positioning of Australia as this kind of middle point almost between the US and China in certain ways. So one thing that was mentioned was Australia's unique position in terms of things like supply chains for batteries, say, where Australia is able to benefit from not implementing the same tariffs that the US is on China because Australia is not trying to implement a trade war with China. And just a more general kind of comment around this trend towards a reversal of globalization, which again, not limited to Australia, but Australia certainly is also trying to shore up its own energy security. So we're seeing that in terms of the government's big push for renewables through its capacity investment scheme, say to underwrite renewable projects and this trends towards more protectionism in there. And then a comment from Michael Chan of Stone Peak was that with all this geopolitics and the uncertainty involved in that, there just really needs to be this bigger kind of emphasis on protecting your downside risk. If you don't know what's coming around the corner, then you just need to build in resilience for these kind of uncertainties that are going to crop up. I also asked the panelists if they could kind of think back to five years ago. Of course everyone was going through the start of COVID so that was the only thing on anyone's mind. But if they could think back five years ago and think what some of the surprises in their portfolio now that they wouldn't have seen back then. So that's where Sandra Lee of UniSuper said the proliferation of AI related infrastructure in their portfolio was something that she wouldn't have expected. And not just for data centers, but also for all the kind of surrounding infrastructure and including renewable energy, which of course is needed to power this massive surge in AI.
- [04:04]
A
Yeah, and I think that digital theme was one that definitely kept cropping up throughout all the conferences in Asia Pacific this year was talked about a bit at Melbourne, but we had separate panels on it all the other events as well. And it definitely is a thematic that a lot of investors are talking about a lot this year for sure.
- [04:20]
B
Yeah. And I think we noticed that maybe through some of the participation in the rooms where digital infrastructure definitely seems to get a lot of bodies in the rooms when that was being discussed.
- [04:31]
A
Yeah, absolutely, absolutely. One thing I wanted to talk about from the Melbourne event was foreign investor interest in Australia, which I think ties in neatly to that theme because the capex need for the data center buildout is so huge. And we've seen some of the big data center platforms down here acquired by foreign investors, like Blackstone's acquisition of Airtrunk alongside CPP last year from funds managed by Macquarie. There was quite a striking panel in the afternoon which was titled Australia versus the Rest of the World. The idea being to compare the relative attractiveness of Australia versus other jurisdictions. And it linked back actually to some networking drinks we had the night before the conference, which brought together some members of the Infrastructure Investor Network, along with their counterparts from our Perry Real Estate Network and the Private Debt Investor Network just at a pub around the corner from the conference venue. And certainly they came up in multiple conversations over a few beers. Then was about the unfavorable tax treatment of foreign investors compared to domestic Australian investors, particularly as it related to capital gains tax, which was quite interesting. So the Australian federal government made some changes earlier this year to how it taxes foreign investors. And essentially they're now on a higher rate of tax than the domestic Australian super funds. That came up again in this panel the next day. Christopher Curtin, who's senior managing director for Asia Pacific at OMERS Infrastructure, the big Canadian fund, he talked about a deterioration in conditions, and that's a, quote, deterioration for foreign investors since he opened omer's Sydney office a little over a decade ago. He particularly cited that tax treatment issue, but also a general politicization of infrastructure in general. He actually used the word demonization of foreign investment in certain types of assets, which was quite striking. It should be noted that OMERS still owns several assets here, what you would probably call blue chip core infrastructure assets like Port of Melbourne and TransGrid. So, not to say they're completely unhappy and ready to walk away from Australia or anything like that, but there was clearly a bit of dissatisfaction amongst him and some others around what they would perceive as slightly unfair terms, I think, particularly when the Australian government is, on one hand, trying to encourage foreign capital to come in to meet its political aims around energy transition and digitalization, and on the other hand, actually sort of penalizing those investors at the same time.
- [06:53]
B
Yeah. And this wasn't just the bears talking at those networking drinks, was it? This was something that continued into the next day at the actual conference.
- [07:00]
A
No, that's right. It was very much said on record on stage at the conference the next day. I think the beers had safely worn off by then and everyone was very sober and knew exactly what they were saying. So it was definitely something that kept coming up over the course of the day. And Chris Curtin was backed up by Jorn Hammer at Copenhagen Infrastructure Partners as well. He discussed the tax treatments and how he was unhappy with them too, and specifically said that he felt he was quite surprised at how ignorant the Treasury Department was about the effect of the changes on foreign investment. So it sounded like there's a few unintended consequences to what the Australian government has done. But Yorn was quite optimistic that there was a dialogue going on with treasury and potentially some changes or tweaks to come to the legislation down the track. But CIP has been very busy down here, or at least trying to be very busy. Did you have any observations on the Australian renewables market and wind in particular, perhaps, and anything else that CIP might be up to?
- [07:56]
B
Yeah, well, I was just going to say that Yorn was actually a little disappointed around something else that he mentioned at the conference, which CIP obviously has a big presence in offshore wind around the world. Actually, something Yawn said was that CIP enters Taiwan in 2017. I think it was at the same time as it entered the Australian market. It's had a string of success in Taiwan. Meanwhile, Australia, there's yet to be a project stood up. So the thing he was disappointed about was that Australia was meant to have its first offshore wind auction a couple of months back. This auction didn't end up going ahead. So the Australian government was citing a lack of investor intention to participate in that auction. From some of the investors I've been speaking to, it seems like they were pretty keen to get into that auction. So not entirely sure what the truth of the matter there is, but the crux of it is that the auction didn't go ahead and so CIP is left kind of without a clear pathway, for the time being at least, of how to really get started into Australian offshore wind. So Australian renewables, it's not of course all about offshore winds, although that would be a big kind of benefits to the, to the whole energy system. But onshore wind as well has had a bit of a tricky time this year. So at the time of that we're recording this podcast, there haven't been any final investment decisions reached for a utility scale onshore wind project this calendar year, which is quite remarkable really, just given what Australia wants to achieve with its rollout of renewables. You know, it's just released its latest nationally determines contribution to the Paris Agreement and so it was looking to reduce its emissions by up to 70% up to 2035 from its 2005 emissions. And to do that, it's going to need a massive ramp up in renewables. To not have any single wind projects stood up this year is quite, quite a blow. But just recently QIC announced that they were taking an extra stake in Tilt Renewables, which is a pretty major wind platform here in Australia. So they've upped their stake in tilt by 19.9% which effectively takes it to full ownership. There's a small 0.1% stake that they're still missing, but they control Tilt now and they've said that two of their wind farms, so a 288 megawatt and another 108 megawatt wind farm should be reaching final investment decision this calendar year. So they'll get in just before Christmas. Hopefully there's some good news before then
- [11:00]
A
and that would be welcome. And it's interesting how politicized the debate around renewables and emissions reduction has been and obviously with the Labour government being returned again earlier this year, it's allowed a bit of stability around that emissions reduction target. As you mentioned, the nationally determined contribution to the Paris agreement was renewed this year or updated, but the opposition seems to be moving away from even committing to NET 0 by 2050 now. It's just an interesting environment and obviously investors like certainty and like to know the policy settings so they can set their own direction and commit capital for the long term. But it's quite striking that there's been no projects committed in onshore wind this year.
- [11:43]
B
So far it is, but this kind of points to a wider issue, it seems, not just in Australia, but to the wider region. Something I've looked into a little bit this year where we've seen auctions in Japan going back a number of years, I think from the start of the decade where offshore wind auctions there still haven't produced any actual projects. They haven't come to fruition yet. And it was a similar story in Taiwan with one of their rounds of offshore wind auctions, where CIP again had a little bit of success there because they were among the only managers able to actually stand up a project in this particular round of Taiwanese offshore wind. Just points to this larger kind of issue of it's all very well and good for a government to make big headlines when they're announcing all the projects that win these auctions, but are they actually going to follow through and get to completion?
- [12:43]
A
Absolutely. And of course Australia might be the center of the climate investing world next year if CoP lands in Adelaide, although a time of recording, very much to be seen, whether it ends up here or in Turkey or Bonn or a mixture of the three. We'll see what happens. You mentioned Japan before, so that might be a good opportunity for us to jump back in time a little bit and take a whistle stop tour around the region as we sort of recap everything we've heard from our Infrastructure Investor Network series this year. So our Tokyo Forum was the first of our conferences this year in the region. It was in early June, so a little while ago now. I'm going to test your memory. What were the main themes from that event and what did it tell us about what's going on in the Japanese infrastructure market at the moment?
- [13:27]
B
Yeah, it is going back a little while now, but one of the key themes I think to come through that forum is a slow but sure kind of Trends towards more LPs in Japan taking on a more direct investment capability. So building up their capability to not always have to Go through gatekeepers to access funds. This is something that Japan Science and Technology Agency has been building up. So the manager of a 11 trillion yen fund for Japan University, so that's about 76, $77 billion. So earlier this year or at our conference actually they announced that they'd made their first two direct infrastructure fund commitments and that was a year after previous conference in Tokyo 2024, where they had signaled their intention to start doing that. So that was quite nice to actually see that follow through and be able kind of check something off from conference to conference. That progress has been made. And I think there are slow signs that other Japanese LPs are starting to go down that kind of trajectory as well.
- [14:45]
A
A sign of how much that investor base is beginning to mature and grow more confident in the asset class?
- [14:51]
B
I think so, yeah. And we're also seeing that some domestic Japanese funds are looking to up their game, so to speak. So Japan's Sumitomo Mitsui Trust bank just recently launched its second domestic infrastructure fund, ramping that up. That's about four times bigger than its predecessor funds there. So yeah, seeing a bit more maturation across both LPs and GPs, I think, and slightly bigger kind of ambitions.
- [15:25]
A
Great. And I was fortunate enough to attend our Seoul Forum in South Korea, which normally runs in the same week as the Tokyo Forum. We did unfortunately have to push it back a little bit this year because of the South Korean presidential election being unexpectedly called for the day of our conference. Just a couple of observations from me about that event. The first is a quite general one. We co located that event and the Tokyo event with our PERI network. Tokyo and Seoul forums focused on real estate. In Seoul in particular, the real estate side of the room was noticeably busier and buzzier, which is quite unusual for Korean investors I think, who generally have been very positive on infrastructure. They like its defensive characteristics, its inflation protection, but I think it's reflective of where we are in the cycle at the moment. Real estate as an asset class, most people think is beginning to turn the corner from the bottom. Infrastructure through the recent period of volatility has mostly done what people have expected it to do, which is provide a hedge against inflation, be more defensive and there's been more of a steady state, so in one sense a little bit less exciting. But the second observation was just around how much digital infrastructure was dominating the discussion, which we touched on a little bit earlier. I moderated one panel on the rise of AI data center investment, which focused a little bit on investment in Korea. But around the wider APEC region as well. And it was striking just how much this is driving investment opportunities for a range of investors and managers, not just in the developed markets that you'd expect like Japan, Korea and Australia, but also in places like Malaysia and the Philippines due to the demographic change that's going on there, rapid population growth, et cetera. And on a similar front, I conducted the LP interview there with John Chang from CPP Investments, one of the big Canadian investors, again, mostly focus on digital and data centers. Interestingly, he's actually more of a real estate guy. He sits with their real estate team. But he was speaking at our infrastructure event because of that overlap in data centers and just the massive need for capex that's drawing money from real estate and infrastructure buckets, as well as even private equity in some instances. Have you seen similar trends around digital in APAC in other markets?
- [17:39]
B
I think so, yeah. And I would look at maybe South Korea as a. A prime example of that. So just recently it seems that Nvidia, world's largest chip maker, is really doubling down on the Korean market. They're launching partnerships alongside Korean investors and building out hyperscale facilities. So I think that will definitely be a market to watch. At an announcement with the government's BlackRock, either BlackRock or the government announced that Korea would be the AI center of APAC. So I guess that's deciders then.
- [18:19]
A
Yep, no further discussion required. Yeah, well, one jurisdiction that maybe would argue that is Singapore perhaps. I mean, they've had quite a bit of data center development, although they have space constraints have started to develop outside the country. Of course, that was the last stop on our APAC swing before we got to Melbourne. Just the week before, actually, on the 22nd of October, this was the return of our Pan Asia II Asia event, which discusses trends from all across the region. First time we've held that event since 2019 when it was in Hong Kong. But the one highlight I wanted to shout out from here was the interview I had the privilege of conducting with Boon Chinhao, who's the Chief Investment Officer for Infrastructure at Singapore Sovereign Wealth Fund gic. GIC is one of, if not the largest, allocators to infrastructure in the world. I did try to find out the size of their infrastructure portfolio on stage. Qinhao did politely decline when I asked, but it's always worth a try. You gotta try, you gotta try. The main takeaway was his discussion around what they want from their partners that they work with. So they do everything you can think of, really. They make Commitments to funds. They do direct investing, joint ventures, you name it. GIC is involved in it. But for the managers they work with, Chinhao said it was all about track record, track record, track record. He said it three times. Fairly obvious, but they want us work with the best performers in the asset class. I did then ask him, what if there's a new manager that wants to work with you that doesn't have a track record? And he said, well, let's be friends first, so get over to Singapore, get to know them a bit better and then maybe something can eventuate down the track. Well, I think we're beginning to run out of time here, Tom. Do you have any final thoughts on everything that's been going on in the Asia Pacific this year?
- [20:00]
B
Well, just that final thought out of Singapore that you had triggered something that I remembered. Jst, the Japan Science and Technology Agency, actually saying they definitely want to be making friends with their GPS as well as they're looking to invest more directly into infrastructure funds. So communication, they said, is number one to being able to build up trust and long term relationships. I think that's maybe especially important when a particular market doesn't have so much nous in doing direct investments. So they can't kind of look to their peers who have done this before, their trailblazers there in a way. So they really need to make sure that what they're doing is safe and they want to be comfortable in those kind of relationships. So this might be a tried and true kind of statement, but it's not just all about who's got the biggest funds or who is the most experienced necessarily, but just building up that those relationships is key.
- [21:00]
A
Yeah, absolutely. And the final point I would make is that I was looking at the figures from our most recent fundraising report at Infrastructure Investor and it showed that only $3.9 billion of the $200 billion raised in the first three quarters of this year, which is a record, were for APAC focused funds. But what that doesn't tell you is the amount of capital that comes from this region, particularly from Japan and Australia, Korea, some of the biggest pools of pension superannuation capital in the world. So the region punches above its weight in terms of allocating even if there's still a way to go in terms of funds actually making investments and deploying here. But then you could argue that shows us a lot of opportunity here too. So I think that's a good place to leave this. It's been an exciting year for infrastructure investing in the Asia Pacific. Our network events will be back again next year in 2026 to take our members and subscribers through everything that goes on. Tom, thanks for your thoughts.
- [21:55]
B
Thank you. Let's do this again sometime.
- [21:57]
A
Let's do it again. Hope to see you at one of those events next year. Cheer.