PSP Eyes Multi-Billion-Dollar Deployment For Core Infrastructure Strategy
Canada's PSP Investments has "multi-billion-dollar deployment targets" for what it's calling its High Inflation Correlated Infrastructure strategy, managing director Michael Rosenfeld told Infrastructure Investor.
The group marked what it describes as an "important milestone" last month in the roll-out of the North American-focused core infrastructure strategy with the acquisition alongside KKR of a 19.9 percent interest in American Electric Power's Ohio and Indiana & Michigan transmission companies for $2.82 billion.
That deal marked the second and largest deal from the HICI strategy, with a previous investment in the transport sector debuting that strategy, although PSP declined to provide further details on the asset involved.
Rosenfeld said PSP was attracted to the deal by the assets exhibiting "fully regulated cash flows that are underpinned by a robust and transparent regulatory framework."
The three states in the portfolio are "undergoing significant tailwinds from digitalization and reshoring of critical manufacturing," he added, while noting the reliability of a counterpart of AEP.
While the HICI strategy was launched in 2020, Rosenfeld stated, it "has gained significant momentum over the past year".
"HICI focuses on investing in North American core infrastructure assets that exhibit defensive, predictable and inflation-linked cash flows as well as investment grade credit ratings," Rosenfeld explained.
"The HICI strategy provides the ability to generate inflation-linked returns that match the plans' liability profile over the long-term and that are attractive on a risk-adjusted basis," he added.
Domestic refocus
PSP's focus on North American core infrastructure will serve to complement the rest of its infrastructure portfolio. PSP's short-term performance has been exhibiting particularly value-add returns, with the infrastructure portfolio generating 19 percent in 2023 and 14.3 percent in 2024. Over the long-term, it has generated a five-year return of 12 percent and a ten-year return of 12.2 percent.
Meanwhile, geographically, assets in the US and Canada comprised 28.2 percent of the portfolio, as at the end of March 2024, with Europe (35.4 percent) comprising the largest share of the assets, while Asia accounted for 15 percent.
"The goal behind HICI is to invest in assets that are closely linked to Canadian inflation, providing a strong match to PSP Investments' liabilities which are indexed to it. Investments with that particular characteristic are typically found in Canada and in the US," Rosenfeld said.
He added that PSP envisages a wide-ranging set of assets for the portfolio and in addition to regulated utility investment such as the AEP deal, availability-based transport concessions, stabilised data centres, tower assets with inflation-linked lease escalators and long-term contracted renewables will all be under consideration.
PSP's annual report for fiscal year 2024, released last June, said it spent much of the period between March 2023 and March 2024 focused on supporting existing platforms and portfolio companies "to provide capital to fund growth and acquisitions in a challenging macro environment."
For fiscal year 2025, PSP will expect to see a boost from its realisation of APAC-based data centre company AirTrunk, which it owned alongside Macquarie Asset Management, and sold to Blackstone and CPP Investments for A$24 billion ($16.1 billion), a deal which closed in December.
For HICI, Rosenfeld said it has the option to invest with other partners, or it could seek to make investments alone.
"We can partner with quality managers, as demonstrated in the AEP deal, but also have the capabilities, resources and capital to pursue opportunities independently, depending on which approach better aligns for or objectives for a given opportunity", Rosenfeld maintained.
PSP has $34.5 billion in infrastructure assets under management, according to last year's report, and has 12 percent allocation to the asset class.
Excellent interview with Michael Rosenfeld, Managing Director, Infrastructure at PSP Investments (featured at the top of this post).
Michael explains well the High Inflation Correlated Infrastructure strategy, how it started in 2020 and taken off over the past year.
I discussed the AEP deal along with KKR here and explained that PSP is following OTPP and others who have ramped up their core infrastructure assets, electricity transmission in particular.
The focus on North America allows the focus to be on inflation-linked assets which best match the long-dated liabilities of PSP members' plans.
The article states PSP envisages a wide-ranging set of assets for the portfolio in addition to regulated utility investment such as the AEP deal, like availability-based transport concessions, stabilized data centres, tower assets with inflation-linked lease escalators and long-term contracted renewables.
Alright not much more to add here, PSP's Infrastructure program is mature and performing well over the long run, its new CIO Patrick Charbonneau used to head it so he knows it extremely well.
The HICI strategy will continue to be an important part of PSP's infrastructure portfolio.
Below, Bloomberg interviews Brandon Freiman, KKR's head of North American Infrastructure on why it and PSP is acquiring a big stake in AEP's Ohio, Indiana and Michigan transmission companies.
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