Future Fund's toll road deal shows desire for more local currency plays

This is the fund’s first direct investment in an Australian toll road, but indications are that it won’t be the last.
Future Fund's toll road deal shows desire for more local currency plays

Australia’s Future Fund has acquired a domestic toll road asset from the New Zealand Super Fund in a shift of ownership from one Pacific sovereign wealth fund to another.

NZ Super and Teachers Insurance sold the stake in the state of Victoria’s largest toll road network for an undisclosed sum.

The Future Fund has a long track record of direct investments in Australian infrastructure, and holds significant interests in some of Australia’s largest transport assets.

But this is the fund’s first direct investment in an Australian toll road. Ben Samild, the fund’s Chief Investment Officer, said the deal is in line with a strategy to seek more Australian-dollar exposures.

Ben Samild
Future Fund


The fund declined to reveal the price paid for the asset. QIC will manage this investment on Future Fund's behalf.

Indications are that this won’t be the last such acquisition for the Australian SWF.

The latest transaction comprises a 19.8% interest in Connect East Group, owner of the largest toll road network in Victoria, which includes a 39-kilometre toll road (EastLink) and a 1-kilometre bypass.

Speaking last month at a conference in Sydney, the Future Fund’s outgoing deputy CIO, Alicia Gregory, said the changing public markets environment and greater stock concentration in global indices, is forcing asset owners to broaden the scope of their allocations.

“As large investors, we’re needing to make more portfolio decisions that can collectively move the dial under different scenarios,” Gregory said.

“We’ve been actively repositioning our portfolio to respond to this environment. We’ve been really focused on enhancing portfolio resilience while increasing our allocation to strategies designed to protect against higher inflation,” she added.

As at the end of March, Future Fund had total assets under management of over $147 billion, with a global infrastructure portfolio in excess of $14 billion, representing almost 10% of its holdings.

Samild made clear the fund is looking to raise its Australian-dollar exposure, but the investment team does not have a target percentage allocation.

“Many themes have been keeping the Australian dollar lower,” said Gregory. “Investors may need to search for alternative forms of defensiveness, perhaps through shorter duration of private credit, differentiated hedging, or seeking assets with a higher, pass-through domestic inflation.

While the Future Fund takes an active role in the governance of these investments, with a view to being an effective long-term steward of capital, it has a long-established relationship with Australian investment firm QIC.

Leveraging its experience in the transport sector, the Queensland-based manager will take charge of the toll road investment on behalf of the Future Fund.

NZ Super would not disclose how much the toll road asset had been sold for, but the fund’s director of direct investments, Hishaam Mirza, told AsianInvestor: “We have been very happy with how this investment has performed,” adding that the sale didn’t reflect a change in strategy for the fund.

Hishaam Mirza
NZ Super

“We’re always open to considering acquisitions or disposals that we believe will add value to the Fund.”

Unlike the Future Fund, NZ Super doesn’t target particular sectors.

But as an investor driven by a strong sustainability ethos, it also expects to broaden its exposure to impact investments in the infrastructure space. 

This is evidenced by its collaboration with Copenhagen Infrastructure Partners on offshore wind, and with Dutch pension investor APG on large-scale global infrastructure allocations. 

“We will continue to assess all investment propositions on their individual merits,” said Mirza.

While core and development infrastructure investments have outperformed NZ Super’s passive reference portfolio, value-added infrastructure investments have underperformed over the five years to 2023.

According to its latest annual report: "Infrastructure (value add) contains a mix of assets, some of which are very new, and others which are in wind-down mode. The under-performance relates primarily to residual assets in a long-dated mandate in China.”

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