Government Fund Weekly Roundup — SWFs Team Up On Infrastructure Mega Deals

February 26, 2016 by SWC Editors

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In the news this week, state-owned funds collaborate on bids for infrastructure assets in the U.K. and Australia. And as oil prices remain low, sovereign wealth funds in Norway and Alaska prepare to support their respective governments’ budgets.

Funds Eye British Infrastructure

Government funds often seek strength in numbers when they invest in infrastructure. Teaming up with their peer institutions can help funds spread risk — and beat competition for prized assets. Not many private-sector organizations can compete with the combined might of a few state-owned titans.

So it proved in London this week. A consortium of government funds has reportedly agreed a £2 billion ($2.9 billion) deal for London City Airport. The seller, New York-based private equity firm Global Infrastructure Partners, has accepted their gargantuan offer.

Five partners are involved in the consortium: Alberta Investment Management Corp.; Ontario Teachers’ Pension Plan (OTPP); Borealis Infrastructure, a unit of the Ontario Municipal Employees Retirement System (OMERS); Wren House Infrastructure, a unit of the Kuwait Investment Authority (KIA); and London-based asset manager Hermes. The group beat rival bids from Chinese institutions and a consortium that included another Canadian pension fund, Public Sector Pension Investment Board.

OTPP, Borealis and KIA are also joining forces on a bid for British energy infrastructure. The three government investors have teamed up with London-based pension manager Universities Superannuation Scheme to table an offer for a majority stake in the gas-distribution arm of National Grid, the British multinational utilities company.

National Grid’s distribution network covers parts of northern England and North London and is valued at approximately £11 billion. The Abu Dhabi Investment Authority (ADIA) and the Canada Pension Plan Investment Board (CPPIB) are also reportedly interested in the stake — but it is not clear at this stage whether they will be joining KIA’s consortium or starting a separate investor group.

Asciano Truce

CPPIB, meanwhile, is involved in a bid for infrastructure assets in Australia. Toronto-based infrastructure group Brookfield Asset Management and Sydney-based logistics company Qube Holdings had been locked in a prolonged bidding war for Australian railway and seaport operator Asciano as the leaders of separate investor groups — but now the two parties are reportedly set to call a truce.

The former rivals and their respective deal partners — which include several government funds — are reportedly ready to make a joint cash offer that values the company at A$9.1 billion ($6.6 billion). Under the terms of the proposal, Asciano's rail and seaport operations would be divided among the members of the two consortiums, which include CPPIB, the China Investment Corp. and the Qatar Investment Authority.

By divvying up the assets in this way, the partners hope to skirt any potential regulatory hurdles. With lawmakers reportedly concerned about China or Qatar gaining control of Australian seaports — which are considered strategic assets by the government — the deal partners propose to allocate Asciano’s rail assets to the foreign investors, with Qube acquiring the ports so that their ownership remains in Australia.

Commodity-Based SWFs Face Government Pressure

As oil prices continue to languish around $30 a barrel, some sovereign funds are facing increasing pressure on their assets (even if reports of a mass sell-off of government-owned assets are exaggerated).

Delivering his annual speech in Oslo, Oeystein Olsen, governor of Norway's central bank, says the government may have to withdraw as much as 80 billion kroner ($10 billion) from the Government Pension Fund Global in 2016 because of the impact of low energy prices on the Norwegian economy. However, Olsen insisted that the fund's investment strategy is not likely to change and that it will not be compelled to sell assets.

In Alaska, lawmakers are ready to consider plans to change the structure of the Alaska Permanent Fund Corp. (APFC), the organization that manages the U.S. state's sovereign wealth fund. Alaskan senators have submitted three separate proposals to modify APFC so that it funnels the fund's income directly to the state’s Treasury, either through a percentage of its investment earnings or a fixed annual transfer. Alaska’s legislature will consider the proposals over the coming months.

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