Dexus Group's infrastructure fund management team, recently acquired from AMP Ltd, is raising fresh money for its open-ended funds as it pursues deals in Australasia.
Co-head of Infrastructure at Dexus, Michael Bessell, has just returned from fundraising visits to Korea, Japan and Singapore, where Dexus has established its first permanent office in Asia.
The firm is raising money for the Dexus Diversified Infrastructure Trust (DDIT) and Dexus Community Infrastructure Fund (CommIF), both aimed at institutional investors. It also has the Dexus Core Infrastructure Fund, aimed at retail investors.
“We are out talking to clients now about fundraising for those funds,” Bessell told Infralogic. “I was up in Korea and Japan two weeks ago. I think appetite from Asia for Australia is still pretty good and I have also been spending time in Singapore and Malaysia as well." He wouldn't comment on what targets they have for fundraising.
In a year long process that finished in March, Dexus acquired AMP Capital's Australian and New Zealand infrastructure and property funds and assets, while US fund manager, DigitalBridge, bought AMP Capital’s infrastructure assets outside Australasia. The sale capped years of upheaval at AMP, which included various efforts to sell parts or all of the business as rival fund managers poached funds and staff.
That has meant AMP Capital's former infrastructure team was largely absent from acquisitions for several years, apart from selling some stakes and bidding on sales of assets in which they were already invested.
In January, Dexus appointed Brian (Pyeongwoon) Kwon - previously senior coverage specialist at DWS Korea - as Head of Distribution, Asia in Singapore to focus on fundraising in the region. While they will raise funds offshore as well as locally, Bessell stresses the investment focus will be Australia and New Zealand.
Raising money in their own country from Australian superannuation funds for core infra funds like Dexus' CommIF has become virtually impossible due to a new annual performance benchmark for super funds introduced by the previous Liberal-National federal government.
The benchmark it used and its short term performance hurdle discouraged local pension funds from investing in low risk, low return, long term investments like infrastructure in their own country.
However, Michael Cummings, Bessell's fellow co-head of infrastructure, said he is confident recent proposed amendments by the Labor federal government will allow super funds to recommence investing in core infrastructure, like completed public private partnerships (PPPs) projects.
More balance sheet
Open ended funds are perpetually open to new funds, although concerted efforts to add new money often only occur when fund managers have particular acquisitions in mind.
Dexus, as purely real assets focused business, is able to balance sheet finance many more acquisitions than highly diversified AMP could, giving the new group far more funding flexibility, Cummings added. This means it can acquire assets, even if it doesn’t have immediate access to all the money needed, and then look to replace some of that with money raised for the funds, he said. Dexus’ own funds could also remain in assets for the long term to align its interests better with LP clients.
In its first deal, since Dexus took over AMP Capital’s domestic funds in March, it used balance sheet money to fund its acquisition of a further 30.58% stake in the AUD 3bn (USD 2bn) new Royal Adelaide Hospital (nRAH) PPP, paying down revolver debt associated with the hospital concession.
Dexus also drew on the Dexus Healthcare Property Fund, the AMP Capital Core Infrastructure Fund as well as CommIF – which already had a large stake in the hospital - to fund the acquisition from InfraRed Capital.
Selected Dexus infrastructure investments
- Melbourne Airport
- Australian National University Student Accommodation
- Victorian Desalination Plant PPP
- Powerco (NZ)
- Macarthur 420 MW Windfarm
- Victorian Comprehensive Cancer Centre PPP
- Royal Adelaide Hospital PPP
- Reliance Rail PPP - Sydney Trains
- Optus Stadium, Perth PPP
Source: Infralogic
Social infra, family offices, renewables
Further social infrastructure acquisitions are an obvious target for future deals given Dexus’ expertise in the property sector. “Your mind quickly turns to sectors and infrastructure where there is a heavy real estate component, including health infrastructure and airports,” Cummings said.
Bessell added that there are a number of secondary PPP deals expected to come to market in the next 12 months.
This includes Abrdn’s current sale of its stakes in three PPP assets in Australia – the Western Australia schools PPP, Optus Stadium and the Australian Capital Territory law courts. CommIF owns half of Optus Stadium, but the pair wouldn’t comment on the deal.
InfraRed Capital is also planning to sell its stake in the NZD 1.25bn (USD 760m) Transmission Gully motorway PPP in New Zealand once it reaches full technical completion.
Dexus has also just raised more than AUD 130m for its new Wholesale Airport Fund directed at rich investors, including family offices, that is investing solely in Melbourne Airport. AMP Capital was one of the original investors when the airport was privatised in 1997 and still retains a 27.3% stake.
They will also consider raising more funds targeting wealthy retail investors, Bessell said.
The real assets company will also look closely at university accommodation deals, where it already has investments, as international students are flooding back after the pandemic. It is looking at a range of M&A deals in other sectors, including renewable energy platforms. It could invest there through its Diversified Infrastructure Fund, which has an internal rate of return target of 9-11%, managed accounts or with co-investors, with an equity investment sweet spot of about AUD 100m-AUD 500m per deal.
Greenfield
At some point, Dexus may also consider greenfield infrastructure, including potentially renewables.
Cummings said Dexus obviously has property development capability and the Diversified Infrastructure Fund can spend up to 20% of its money on greenfield deals.
However, the construction of infra projects is not on the radar for the near future.
“Traditionally we haven’t played heavily in greenfield,” Cummings said. “Dexus are a developer so there is a capability there. It is early days, but these are opportunities now that we didn’t have at AMP and those development capabilities mean that we can now look at greenfield.”
[Editor's note: The tenth paragraph has been amended post-publication to clarify that Michael Cummings is referring to the recent proposed amendments by the federal government.]
