SWF Weekly News Roundup — Risks and Opportunities in Infrastructure

June 26, 2015 by Loch Adamson

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Australia and the U.K. are seeking sovereign wealth fund capital for their infrastructure networks. Meanwhile, Temasek teams up with CVC Capital Partners to make another pharmaceutical investment and ADIC gets a new chairman.

SWFs Bid for Infrastructure in Australia...

The Australian state of New South Wales inaugurated its long-awaited "Poles and Wires" privatization drive this week, inviting offers for the long-term lease of electric transmission network TransGrid. The move is anticipated by sovereign wealth funds, which are keen on such infrastructure opportunities because of the stability and long-term cash flows these kinds of investments can deliver.

The Abu Dhabi Investment Authority (ADIA), which manages an estimated $620 billion in assets, and Wren House Infrastructure Management, a unit of the $548 billion Kuwait Investment Authority (KIA), are reportedly teaming up with Canadian pension fund Caisse de Dépôt et Placement du Québec and two local partners, Melbourne-based Hastings Fund Management and Spark Infrastructure, also of Melbourne, on a A$9 billion ($6.96 billion) bid for TransGrid.

China Investment Corp. (CIC) has formed a rival consortium with New York-based Global Infrastructure Partners and state-owned energy giant China Southern Power Grid Co. This is the first time that CIC has partnered with another Chinese government-controlled company on a bid, and may indicate a new willingness to draw on the knowhow of its peers after struggling to institutionalize its own expertise in the asset class.

Another consortium, led by AustralianSuper, the country's largest superannuation fund, and an investor group comprising Queensland Investment Corp., a manager of the Australian state's pension funds, Melbourne-based asset manager IFM Investors and Cheung Kong Infrastructure Holdings, Hong Kong's largest publicly listed infrastructure company, will submit rival bids for TransGrid.

...and the U.K.

The U.K., too, is seeking sovereign wealth fund capital for its infrastructure network — but for development projects, not mature assets. Dominic Jermey, the chief executive of UK Trade & Investment, a government department tasked with attracting foreign capital to Britain, has reportedly met executives from ADIA and the $60 billion Mubadala Development Co. to try to drum up investment in the High Speed Two (HS2) rail project and in the so-called Northern Powerhouse initiative, which aims to invest in England's struggling post-industrial regions through infrastructure. The Qatar Investment Authority (QIA), which manages an estimated $304 billion in assets, is reportedly in talks to finance the development of a logistics and transport hub located around Cardiff Airport in South Wales.

Mubadala may be focusing on developed market infrastructure out of concern for the risks involved in emerging markets. A case in point — its Brazilian seaport, Porto Sudeste, in which Mubadala and Amsterdam-based commodities firm Trafigura own a combined 65 percent stake. This week the port lost its only client after failing to open more than three years after the original deadline of April 2012. The port was due to serve Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais (Usiminas), but the company pulled out after the port's opening was repeatedly delayed. Mubadala and Trafigura acquired the port in February from Rio de Janeiro-based firm MMX Mineração & Metálicos, which is now under bankruptcy protection.

ADIC Shuffle

There was a major management shakeup at the $110 billion Abu Dhabi Investment Council (ADIC) this week. The Abu Dhabi government has appointed Sheikh Mohammed bin Zayed al-Nahyan, the emirate's crown prince, as the fund’s new chairman. According to the state news agency, al-Nahyan, who also serves as chairman of Mubadala, has replaced U.A.E. President Sheikh Khalifa bin Zayed al-Nahyan as the head of the fund.

More surprisingly, Khalifa Mohammed al-Kindi, who had served as managing director of ADIC since the fund started in 2007, has also been replaced. Isa Mohammed al-Suwaidi, who sits on the board of some of Abu Dhabi's largest financial institutions, is now managing director. Al-Kindi has now left the fund’s board of directors.

Temasek Bets On Pharma

Singapore’s $177 billion state investor Temasek Holdings has teamed up with London-based CVC Capital Partners and New York-based venture capital firm Vatera Healthcare Partners to buy a controlling stake in Pine Brook, New Jersey-based drug maker Alvogen. The consortium bought the undisclosed stake from London-based Pamplona Capital Management in a deal that values Alvogen at around $2 billion. Aztiq Pharma, the investment holding company owned by Robert Wessman, Alvogen's CEO, will continue to be a significant shareholder in the firm.

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