In mid-2020, Alexandra Campbell left AustralianSuper to lead infrastructure investments at fellow Australian superannuation fund Cbus Super. Several months later, Cbus Super entered what was a milestone deal for it and New York-based infrastructure asset manager Stonepeak. Stonepeak won control of Astound Broadband, the sixth-largest cable operator in the US, for US$8.1bn (€7.5bn) from TPG Capital. The investment gave Cbus a ringside seat in North America’s fast-growing digital infrastructure sector.
Astound’s high-speed communications infrastructure networks serve eight of the 10 largest US metro areas. And within weeks of its change of ownership, Astound went on to acquire WideOpenWest for US$661m, allowing it to open new markets in areas largely adjacent to its existing operation.
Astound is now one of the single-largest infrastructure exposures of the A$73.8bn (€47.3bn) Cbus Super. It is also one of a string of recent investments in new sectors, pivoting the super fund away from the traditional infrastructure asset classes of transport, energy and utilities.
In the past two years, the Melbourne-based fund has also forged strategic relationships with global fund managers, including Brookfield Asset Management, KKR and Copenhagen Infrastructure Partners (CIP). It has partnered with Brookfield for investment in digital transformation of the built environment, and with CIP to develop renewable assets to generate sustainable power sources.
In March 2022, Cbus Super was part of a group of institutional investors to back KKR in its joint US$15bn bid with Global Infrastructure Partners for the US data centre company CyrusOne Data centres, an owner and operator of more than 50 high-performance data centres worldwide. For Cbus Super, these investments have transformed its infrastructure portfolio and reorientated its focus from domestic to global, with a focus on the US.
The change is best captured in that list of largest single exposures to infrastructure assets. In mid-2021, all but one of its largest infrastructure exposures were located in Australia. A year later, half of its 10 largest infrastructure investments were located offshore and by the end of September only one of its top five largest exposures was domestic – the remainder were located in the UK and US.
Campbell, who is head of infrastructure and private markets, says: “As the portfolio grows, I am expecting the proportion of domestic assets to decline over the medium-to-long term, with incrementally more investment expected to be in offshore markets.”
There is no inherent bias towards offshore markets, she explains, but the ones that Cbus Super is focusing on are typically deeper, with larger populations and with relatively under-developed private infrastructure markets.
The focus has been on digital infrastructure. “At least half the investment proposals we have had a serious look at over the last year had been in the digital and data space,” Campbell says. “But we have been very cautious in what we take up.” Each investment has been made with “a lot of conviction” – of both the growth in the sector and the likelihood that any “particular entity would capture that growth”.
She says: “We are being very selective about the pricing and earnings multiples that need to be paid on the way in, and what the growth assumptions are, both on revenue and earnings. Then you must assess the reasonableness of the assumed exit multiples. Generally, I would say the sector has been quite bullish compared to some other more traditional infrastructure.”
Campbell adds: “Pricing has increased so much, because digital infrastructure is one of the areas in infrastructure that is still growing in OECD economies. This is quite different from traditional infrastructure, particularly transport and utilities. These old economy assets are not growing at the same pace as key telco assets, including data centres, fibre and cell towers.”
Campbell says due diligence on individual assets entails looking at all the relevant variables and ensuring that growing demand for services translates to the bottom line. “Attractive as the growth profile may be, we find that sometimes the numbers don’t stack up,” she says.
Campbell has seen multiples of 40-50 times of a company’s earnings on some transactions. In the digital-data world, she says, deals are often being done based on ‘run rate’ earnings, where earnings are adjusted to reflect booked but as of yet undelivered growth. But cooler heads are starting to prevail, she suggests, perhaps in reaction to increasing economic uncertainty globally. “We are now starting to see a little bit of softening in pricing.”
Energy transition, another sector attracting competition for investment, comes with its own risks. “I personally don’t believe that a lot of development is core infrastructure,” she says. “So we have been very selective in the renewables we invest in.”
In the US, Cbus is invested with Capital Dynamics and investors, including the California State Teachers’ Retirement System and the UK’s Brunel Pension Partnership, in two solar-power projects. “It was already operational when we came in, and we are now focused on optimisation of the assets,” Campbell says.
Cbus Super entered renewables in 2018. Its first direct renewable infrastructure investment was when it partnered with the Dutch Infrastructure Fund (DIF) and Synergy, the state-owned electricity generator and retailer of Western Australia, to acquire Bright Energy Investments (BEI). Cbus Super and DIF together hold 80.1% of BEI, which owns a portfolio of wind and solar renewable-generation assets.
Bright Energy developed three projects: the 180MW Warradarge Wind Farm, the Greenough River Solar Farm, and the Albany Grasmere Wind Farm, a 35.4MW facility comprising 18 turbines. Bright Energy is a development portfolio and intends to keep increasing its capacity. Its Greenough River Solar Farm, which was the first utility-scale solar farm in Australia, has been expanded to 40MW – four times its original capacity.
As Campbell sees it, stabilised core assets are far and few between, and when an asset comes to market it can command an exorbitant price. She says Cbus Super finds better value partnering with the likes of CIP to develop core assets, thus earning a premium for accepting the development risk, which is mitigated through partnerships.
This year, Cbus Super has committed to its most ambitious investment yet, taking a 10% stake in what is expected to be Australia’s first offshore wind project, known as Star of the South. The project is expected to cost up to A$10bn (€6.5bn) and to begin delivering energy in 2028. Cbus Super acquired the stake from CIP Flagship Fund IV in what it described as a “landmark” deal.
The difference between Bright Energy and Star of the South, Campbell says, is that the former was partially operational when Cbus invested. Star of the South is a long-dated development project.
“Offshore wind is always complex, and building in Bass Strait, described as ‘the windiest place on earth’, adds another layer of environmental issues, including the paths of whales in their annual migration to warm waters,” she says.
“There has been a lot more capital flowing into renewables and there has been a lot more stress on the grid . It certainly has its challenges from that perspective, but Star of the South will be able to utilise the existing on-land transmission network to distribute its energy output.”
After energy generation, the next phase is storage. “As yet, we don’t have an investment case for it, but we are doing a lot of work around what those storage technologies look like, ranging from hydrogen to batteries, to pumped hydro.” Cbus Super’s US investment with Capital Dynamics has battery storage in development.
Campbell says the Cbus Super infrastructure portfolio has been constructed to drive growth and performance, and is not simply a diversifier. “We are looking for something extra, whether it is taking some development and greenfield risk or looking to earn a premium by bringing together a portfolio in a fragmented market,” she says.
Cbus Super’s infrastructure portfolio is valued at about A$9bn, of which 25% is in single assets.
In the first two decades of its existence, Cbus Super invested through pooled funds with the likes of IFM Investors and Utilities Trust of Australia (UTA), the latter now managed by Morrison & Co.
In partnership with these pooled funds, Cbus Super co-invested in a string of traditional assets, particularly in transport. These have weathered the impact of COVID-19 downturns, while the seaports, particularly Port Botany in Sydney, have performed well throughout the pandemic.
Campbell says the pandemic hit UK ports harder, partly because of Brexit. Domestic Australian airports had picked up “pretty strongly”, although international traffic is not yet back to pre-COVID numbers.
Toll roads took a hit initially, both in Australia and offshore, but were soon supported with the increased transportation of goods as well as people switching from public to private transport. However, the investment opportunities that came out of the privatisation of public assets in Australia have been exhausted. Campbell does not see those assets coming back to the market, and does not anticipate meaningful greenfield development opportunities in airports or seaports. “There is not a lot available, certainly not enough to meet the requirements of the industry funds, which is a key reason we look overseas,” she says.
Cbus Super made its first international infrastructure investment when it partnered in 2018 with Aware Super and GLIL Infrastructure to buy a stake in Forth Ports, which runs seven ports in Scotland and one in London, from Canada’s Public Sector Pension Investment Board.
“I am expecting the proportion of domestic assets to decline over the medium-to-long term, with incrementally more investment expected to be in offshore markets”
Although Cbus Super has in-house capabilities to acquire and manage directly owned infrastructure assets, Campbell says the fund will continue to invest through external managers offshore. Some have teams “200 deep, highly-specialised” with a presence in many markets, she says. “We can’t replicate that, nor do we want to. We are currently Australian-based, although that may change in the future.
“With global infrastructure, we have – and will continue to have – leverage in our strong relationships with KKR, Stonepeak and CIP, to name a few. We get the benefit of their skills and, through them, we are now getting single-asset exposures, which is something we really like. Our hybrid investment strategy is a cost-effective way to access deep global resources.”
In a rising-interest-rate world, clouded by geopolitical risks and facing the threat of a recession, Campbell is ready for a changed environment. “We are conscious of risks to valuations and where they have gone in the public market,” she says.
“How that may translate to the private market is certainly something we think about every day. We have done a lot of work to understand the consequences of a rising-interest-rate environment on our directly and indirectly-owned assets. My view is we have a strong portfolio, but we certainly cannot ignore market movements around debt. So there is likely to be some shift in pricing.
“I don’t expect infrastructure price movements to be close to what is happening in the listed equity market. However, I hope that they will provide some improved buying conditions for well-resourced industry funds like us that have liquidity.
“When, hopefully, prices soften, Australian super funds are well placed to make good investments over the next 12-24 months that will set us up for the next five to 10 years.”