Posted by Macquarie Asset Management
July 7, 2022
Frank Kwok, senior managing director and head of real assets Asia-Pacific
This article was first published by Infrastructure Investor in July 2022 and is extracted here with permission.
The closing of MAIF3, the largest pan-Asia infrastructure fund raised to date, represents a maturing of the asset manager’s regional strategy, putting it on a par with its European and North American fund series, its team tells Daniel Kemp.
For Macquarie Asset Management, the close of its third Asia-Pacific Infrastructure Fund in May on more than $4.2 billion represents a stake in the ground in more ways than one.
It is, of course, the largest pan-Asia infrastructure fund raised to date, overtaking KKR, which claimed the regional crown from MAM in January 2021 with a $3.9 billion close on its inaugural Asia fund (with a team of ex-Macquarie investment professionals overseeing the strategy).
But beyond that, the close now means that MAM has a series of three funds in play focused on the region: MAIF1 closed on $2.3 billion in early 2016 and is now firmly in the divestment phase; MAIF2 closed on its hard cap of $3.3 billion in 2018 and has essentially reached full deployment, with assets being actively managed; and now MAIF3, with a full war chest of capital in deployment mode.
“We’re covering the whole life cycle,” says Frank Kwok, senior managing director and head of MAM’s real assets business in Asia-Pacific.
“Our teams across the eight offices in the region are not just looking [solely] at deploying capital or managing investments – we’re at the level of maturity where we’re a whole life cycle business and focused also on exiting our investments. We’ve talked internally about covering the whole life cycle, like our colleagues in Europe and the Americas, and we’ve always aspired that Asia-Pacific would get to the same place that they have – and we’re there now.”
Verena Lim, chief executive of Macquarie Group Asia and head of investments for Macquarie Asia-Pacific infrastructure fund series
The strategy for MAIF3 remains largely unchanged from previous iterations in the series: to invest in a diversified portfolio of infrastructure assets in China, India, South Korea, Japan, Australia, New Zealand, Indonesia and other South-East Asian countries. It is also a 10-year closed-end fund.
The vehicle has already committed more than $2.4 billion, alongside $3 billion in co-investments, to seven assets. This contributes to what Kwok describes as MAM’s “largest year of deployment globally”, a majority of which has come through bilateral or non-competitive deals, with digital infrastructure and decarbonisation representing particularly strong thematics.
“Those thematics are strong globally but we believe [they] are growing even more quickly in importance in this region,” Kwok says.
“Energy demand is growing faster in Asia than anywhere else in the world. And digital penetration in this region is happening phenomenally more quickly than we see in the rest of the world, mainly because we are starting from a low base. But we still need to make sure the portfolio is diversified, so we will have GDP-focused assets and we’ll still look at transportation assets, for example.”
The fund series has also grown with each successive instalment, but MAM did not set out with the intention of making each larger than its predecessor, explains Verena Lim, chief executive of Macquarie Group Asia and head of investments for MAM’s Asia-Pacific infrastructure fund series. Rather, it was guided by investor appetite and availability of investment opportunities.
“The size of the funds has increased but we have also been disciplined in working out what size is appropriate for each fund,” says Lim. “That predominantly reflects the opportunity set that we see in our target markets and the sectors that we’re looking at."
“We had at least 10 new investors – not just to the fund series but to MAM – commit to this fund. In profile, it is broadly similar: a mix of pension funds, sovereign wealth funds, insurance companies and other institutional investors.
“We have more than 25 years of experience in the sector and in Asia-Pacific, and we now have a strong track record of realisations, which is one of the differentiators we have in this space. You can’t underestimate the value of the lessons that we’ve learned over that period.”
Eric Kim, senior managing director and head of real assets Korea and Japan
Among the MAM real assets team’s eight offices in the region is a base in Seoul, where it established its Korean infrastructure business in 2002, focusing on toll road privatisations before launching an infrastructure fund that listed on the Korean stock exchange in 2006. It has also been investing in the country through its MAIF series. For MAIF3, the firm has acquired Summit Energy Alliance, a platform to invest in solar developers in South Korea.
Eric Kim, a senior managing director at MAM and head of real assets for Korea and Japan, says that most solar farms in Korea are small scale, meaning that aggregating the assets directly would be challenging.
“Rather than doing it ourselves, our strategy is to invest in credible developers who have the capability to develop the assets from bottom up or find projects that are close to construction,” says Kim. “After spending a considerable amount of time on partner selection, we recently launched this platform by acquiring two developers.” The result was Summit Energy Alliance, which takes majority stakes in each developer it invests in, with management retaining a small stake to foster alignment.
Beyond solar, Kim says that South Korea offers a wealth of opportunities that MAM is well placed to act upon. “Korea has been a very interesting infrastructure market – most of the big deals were driven by large Korean conglomerates, and we still expect there will be more opportunities from these large conglomerates as they develop non-core assets. They are also starting to look at new high-growth sectors like energy transition and hydrogen, and we see opportunities to partner with these organisations on that.”
“We see ourselves as an early mover in the Korean infrastructure market. When we entered the waste management and waste-to-energy sectors in 2013, for example, no one at the time had significant private investments in those areas. It was very fragmented, run by smaller or family-owned companies."
“We identified a few good companies and used that to launch a platform, adding bolt-on strategies to consolidate good companies all over the country. After that, a number of other private equity funds entered the market.”
Chris Low, managing director and co-head of real assets South-East Asia and India
Another opportunity that MAM has identified is Indonesia, with the firm completing its first infrastructure deal in the country through MAIF3: an investment in Bersama Digital Infrastructure, a regional digital infra platform that currently owns a majority stake in Tower Bersama Infrastructure, a leading telecommunication towers business in Indonesia.
Chris Low is a managing director at MAM and is co-head of real assets for Southeast Asia and India, which includes responsibility for Indonesia. Low finds the country “attractive because, thematically, it has a lot of positive things going for it. There is strong population growth and GDP growth, and, under the current administration, which is in its second term now, there has been a positive drive towards encouraging foreign investment and investment in infrastructure. That’s led to a real opening up of investment opportunitie."
The country has always held a lot of promise, Low says, and MAM has been monitoring it closely for years, trying to build a presence there quite deliberately and carefully, searching for the right opportunities and investment counterparties.
“There has been a lot of capital required to increase the quality of infrastructure in the country, but for one reason or another it has always been a promise that has never quite been realised,” says Low. “But there has been significant progress in the last three or four years, especially in investment into toll roads and, more recently, digital infrastructure and renewable energy. The consistency shown by the current administration in terms of its openness to engaging with foreign investors has finally translated into dealflow.”
The MAIF3 investment in Bersama Digital Infrastructure fits squarely into the digital growth thematic that is prevalent across Asia, but especially in Indonesia, Low says: “Fibre is not very prevalent in Indonesia, so a lot of people consume data on their mobile phones, and there has been a lot of investment into e-commerce in the country too because of its young demographic and large population. The statistics around data consumption there are just amazing and it will just continue to grow.”
Despite the boom in demand, a lot of capital is required to roll out more telecoms towers in particular, to densify the network. This is where Bersama will come in. “We are planning to then step into adjacent sectors like fibre and data centres within Indonesia, before taking that capability and track record to deliberately and carefully expand around the region,” Low says, with the Philippines and Malaysia on the radar for the platform.
“We’re very positive about the long term outlook in Indonesia and we’re reviewing a number of other opportunities there for MAIF3 outside the digital infrastructure space as well,” Low continues. “The Philippines would be our other core market in South-East Asia where we see recurring dealflow, and we’ll keep other countries on the radar on a more opportunistic basis.”
The digital thematic is also a strong driver of investments in Macquarie’s home country, with the firm so far agreeing two deals in Australia from MAIF3, and another just across the Tasman Sea in New Zealand.
Ani Satchcroft, senior managing director and head of digital infrastructure ANZ
In Australia, MAM was involved in two high-profile deals to acquire companies listed on the Australian Securities Exchange. The first is not a digital infrastructure asset: the A$2.3 billion ($1.6 billion; €1.5 billion) acquisition of Bingo Industries in August 2021, a vertically integrated recycling and waste management business.
But the second is squarely in the middle of the digitisation theme: the A$3.5 billion purchase of Vocus Group (alongside Aware Super), a specialist fibre and network solutions provider. Building on that, in January 2022, MAM reached an agreement to add 2degrees, another telecoms business, to its portfolio for NZ$1.3 billion ($814 million; €774 million), planning to merge the company with Vocus.
Senior managing director Ani Satchcroft is MAM’s head of digital infrastructure for Australia and New Zealand and has been focused on building out the company’s digital infrastructure practice since joining around six and a half years ago from Goldman Sachs Infrastructure.
“Five, six years ago we could see the clear trends toward society and the economy digitising,” says Satchcroft. “Unsurprisingly, many of the assets that supported this digitisation have the same characteristics as ‘traditional’ infrastructure assets: cashflow visibility; criticality to the economy and society; a community expectation that these assets operate reliably and securely, with sufficient capacity and without interruption.”
MAM does this in Australia and New Zealand through two buckets: data assets, which include land registries and motor registries; and connectivity assets, which are needed for the movement of that data, such as telecoms towers and data centres. It is only the latter bucket that MAIF3 has deployed capital into so far.
“Vocus was a company we had been following for quite some time,” says Satchcroft. “We were reluctant to get involved when they had previously come into play because it felt like they still had a way to go with their integration – by the time we approached them towards the end of 2021, they were starting to hit their stride – they had their operations under control and were ready to grow. And they felt like a company that could grow more effectively in a private capital market environment than a public capital environment, because the real potential was to build out their network and analyse those capital builds with a longer-term horizon, in a more strategic way.” MAM then spun out Vocus NZ as a separate business before merging it with 2degrees.
Neil Johnson, managing director and head of real assets China
MAM has also made two investments from MAIF3 in China: one is in hyperscale data centre developer and operator Bohao Internet Data Services, while the other is cold and dry storage logistics platform Metcold Supply Networks II. It’s the first time that MAM has invested in a digital asset in China through the MAIF fund series, with previous investments being made in onshore wind, specialised logistics and core utilities.
“The key macro thematic over the past decade has been the translation of strong headline GDP growth into growing household incomes and ultimately the rise of one of the world’s largest consumer markets,” says Neil Johnson, managing director and head of real assets for MAM in China.
“In the past year, COVID-19 has impacted consumption in general. However, the long-term trend is clear and China will soon surpass the US to become the world’s largest consumer goods market. This rise in household income, most notably in the Eastern Coastal Provinces, has increased the demand for, and affordability of, high-quality essential infrastructure, and driven demand for discretionary infrastructure, as demonstrated by the proliferation of air travel in China.”
On Bohao, Johnson says that China has the world’s largest number of internet users and the world’s biggest 5G network, which, combined with a forecast of significant growth in data use driven by the rise of the internet of things, will continue to see demand for data storage and processing capacity.
MAM plans to continue investing in both Bohao and Metcold Supply Networks II, positioning them as platform investments with room for growth. “Deployment of the fund in general, and in China in particular, has been very strong so far,” Johnson says. “Whilst we do have the capacity to do more deals in China, our focus is on executing follow-on investments into the two existing platforms, an indication of our conviction in those strategies.”
The close of MAIF3 has been a long time coming and there is still a huge amount to do in terms of deployment, especially considering the amount of co-investment capital that MAM intends to put to work from its LPs.
“We’re very happy with the portfolio we’ve put together so far,” Kwok says. “The resilience of our portfolios from Fund I and Fund II over the COVID period is also being reflected in their performance, including in the exits that we’re starting to realise from Fund I.
“The 60 investment professionals we have dedicated to this fund series are all a part of it, and our aim was to build the series for our clients to a similar level to [what] we have established in Europe and the Americas. We now have that maturity here and we are really proud of that track record.”
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