Future Fund acquires stake in infrastructure company

Amid growing market appetite for infrastructure investments, Australia’s sovereign wealth fund has announced it has completed an acquisition of a 19.8 per cent interest in Connect East Group – owner of the largest toll road network in Victoria with a 39km toll road (EastLink) and a 1km bypass (Ringwood Bypass) – alongside its partner QIC. 

“This is the Future Fund’s first direct investment in an Australian toll road and is in line with our strategy to seek more Australian dollar exposures,” said Ben Samild, chief investment officer for the $223 billion Future Fund.

“Infrastructure assets such as Eastlink provide reliable long-term returns and help to protect the portfolio from sustained higher inflation and interest rates.”

The Future Fund’s director for infrastructure and timberland, James Fraser-Smith, also described the investment as a “valuable addition” to its infrastructure holdings.

Presently, the fund holds over $11 billion in Australian infrastructure investments, including assets like Melbourne Airport, Perth Airport, Port of Melbourne, Canberra Data Centres, Amplitel, OneFortyOne Plantations and Tilt Renewables.

Additionally, its global infrastructure portfolio stands at around $21 billion, or 9.5 per cent of the fund.

Over the past year, a number of investment executives have highlighted the opportunities that lie in infrastructure investments.Transportation assets like airports and toll roads have particularly been noted as winners against the backdrop of potential interest cuts by global central banks and rising passenger volumes.

In February, First Sentier Investors (FSI) suggested 2024 looks to be the year when global listed infrastructure is positioned to achieve outperformance.

It emphasised the effective inflation pass-through supporting earnings in the asset class, with many companies said to be trading at levels unseen since the Global Financial Crisis (GFC). It also predicted an appealing combination of inflation-linked income, with a yield ranging between 3 per cent and 4 per cent, coupled with structural growth, anticipating earnings growth in the range of 6 per cent to 7 per cent.

Similarly, IFM Investors, which manages some $108.8 billion for its 686 institutional investors, including its 17 Australian industry super owners, described infrastructure as the “new portfolio cornerstone”.

“The resilience of infrastructure returns has been in the spotlight due to recent market volatility, and investors around the world are starting to catch on to what IFM’s known for almost 30 years – infrastructure should be treated as a portfolio cornerstone,” said global head of infrastructure, Kyle Mangini.

Globally, private pension funds remain underinvested in infrastructure relative to their targets, signalling a significant wave of potential new investments to come, it suggested.