OTPP Sells Stakes in UK Airports?

The Canadian Press reports, Ontario Teachers’ Pension Plan selling part of its stakes in U.K. airports:

The Ontario Teachers' Pension Plan says it is selling off 30 per cent of its stakes at two United Kingdom regional airports to broaden its investment strategy.

The deal will see Australia's New South Wales Treasury Corporation and Sunsuper Superannuation Fund each acquire a 15 per cent stake of Ontario Teachers' ownership in Bristol Airport and Birmingham Airport.

Ontario Teachers' has been an investor at the two airports since 2001, increasing its stakes to 100 per cent at Bristol and 48.25 per cent at Birmingham in 2014 with the intention of bringing in new partners.

Following completion, Ontario Teachers' will own 70 per cent of Bristol Airport and 33.8 per cent of Birmingham Airport.

The sale is expected to complete in late November.

Bristol Airport is the ninth-largest airport in the U.K. with 7.5 million passengers in 2016 and Birmingham Airport is the seventh-largest airport in the U.K. with 11.6 million passengers in 2016.

"Working with like-minded partners who bring new ideas, capital and expertise to the table is core to our broader investment strategy," said Andrew Claerhout, head of infrastructure at Ontario Teachers'.

"Under the new shareholder structure we will continue to focus on creating long-term value for all stakeholders including the 19 million passengers who fly through these two airports every year."

Ontario Teachers' put out a press release, Ontario Teachers’ strikes new investment partnership at Bristol and Birmingham Airports:

Ontario Teachers' Pension Plan ("Ontario Teachers'"), and Australia's New South Wales Treasury Corporation ("TCorp") and Sunsuper Superannuation Fund ("Sunsuper"), are announcing they will become investment partners in Bristol Airport and Birmingham Airport, two of the UK's leading regional airports.

Ontario Teachers' has entered a definitive agreement by which it will sell 30% of its stakes in both Bristol and Birmingham to TCorp as trustee of TCorpIM Direct Investment Fund E and Sunsuper Pty Limited as trustee of Sunsuper. TCorp and Sunsuper will each acquire 15% of Ontario Teachers' stakes in Bristol Airport and Birmingham Airport. Following completion, Ontario Teachers', TCorp and Sunsuper will own 70.0%, 15.0% and 15.0% of Bristol Airport and 33.8%, 7.2% and 7.2% of Birmingham Airport respectively.

Ontario Teachers' is Canada's largest single-profession pension plan. TCorp is the financial markets arm of the public sector in New South Wales, Australia, and Sunsuper is one of Australia's largest and fastest-growing superannuation funds.

"Working with like-minded partners who bring new ideas, capital and expertise to the table is core to our broader investment strategy," said Andrew Claerhout, Senior Managing Director, Infrastructure and Natural Resources at Ontario Teachers'. "We look forward to TCorp and Sunsuper joining us as shareholders, alongside the strong teams at Bristol and Birmingham and Ontario Teachers' enduring partnership with the District authority shareholders in Birmingham. Under the new shareholder structure we will continue to focus on creating long-term value for all stakeholders including the 19 million passengers who fly through these two airports every year."

Ontario Teachers' is the largest private investor in airports in Europe, with holdings in five freehold airports: Copenhagen Airports, Brussels Airport, Bristol Airport, Birmingham Airport and London City Airport. Ontario Teachers' has been an investor in Bristol and Birmingham Airports since 2001, increasing its stakes to 100% (Bristol) and 48.25% (Birmingham) in 2014 with the intention of bringing in new partners.

"In addition to the attractive investment characteristics of the individual airports, TCorp was particularly interested in this investment because of the opportunity to partner with Ontario Teachers' Pension Plan and Sunsuper, both experienced and like-minded global infrastructure investors," said Stewart Brentnall, TCorp Chief Investment Officer. "We are excited about working with our partners, not only on this investment but also on future opportunities. TCorp has a strategy of building long-term relationships with other sophisticated investors, which we believe will help to deliver value to our clients and members, both for managing existing investments and for identifying new investment opportunities."

"Sunsuper is an experienced investor in the Australian airport sector, and we are excited to expand our existing portfolio by adding stakes in two high-quality UK airports in Bristol and Birmingham," said Michael Weaver, Head of Private Markets at Sunsuper. "We believe that investments in the infrastructure sector provide greater scope for value creation through responsible stewardship, governance and proactive management of assets to create value for our members. We look forward to our ongoing involvement in the Bristol and Birmingham airports, with a key focus on delivering high-quality outcomes for all passengers and stakeholders."

Bristol Airport is the ninth largest airport in the UK with 7.5 million passengers in 2016, and Birmingham Airport is the seventh largest airport in the UK with 11.6 million passengers in 2016.

The sale is expected to complete in late November.

About Ontario Teachers'

The Ontario Teachers' Pension Plan (Ontario Teachers') is Canada's largest single-profession pension plan, with CAD$180.5 billion in net assets at June 30, 2017. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annualized gross rate of return of 10.1% since the Plan's founding in 1990. Ontario Teachers' is an independent organization headquartered in Toronto. Its Asia-Pacific region office is located in Hong Kong and its Europe, Middle East & Africa region office is in London. The defined-benefit plan, which is fully funded, invests and administers the pensions of the province of Ontario's 318,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About TCorp

TCorp provides investment management and financial services for the government of New South Wales, which is the largest state in Australia by population and economic activity. TCorp is the third largest institutional investor in Australia. TCorp's investment management business currently manages approximately A$90 billion of funds. For more information, please visit www.tcorp.nsw.gov.au

About Sunsuper

Sunsuper, a profit-for-members superannuation fund, is one of the 10 largest pension funds in Australia. Sunsuper was established in 1987 and is headquartered in Brisbane, Australia. As at October 2017, Sunsuper had A$46 billion in funds under management and over one million members. Sunsuper invests across a diversified portfolio of global assets, including in the infrastructure sector. Sunsuper has been investing directly in infrastructure since the late-1990s, making it one of Australia's most experienced infrastructure investors with a long track record. For more information, visit www.sunsuper.com.au

This deal was in the works for a few months now. Back in February, Reuters reported, Ontario Teachers to sell minority stakes in two British airports - source:

Canada’s Ontario Teachers’ Pension Plan (OTPP) is looking to sell minority stakes in Britain’s Bristol and Birmingham airports, a source familiar with the matter said on Friday.

OTPP, which manages around $130 billion and is a big investor in British infrastructure projects, currently owns 100 percent of Bristol Airport and around 50 percent of Birmingham Airport, the source said.

While keen to remain invested in the assets, the group is looking to take advantage of strong demand from pension funds and other long-term investors for the often-attractive returns on offer from high-quality infrastructure, the source said.

OTPP would retain its share in London’s 2 billion pound City Airport, which it bought in February 2016 in partnership with two other Canadian pension funds and the Kuwait Investment Authority.

This morning, I spoke to Andrew Claerhout, Senior Managing Director, Infrastructure and Natural Resources at Ontario Teachers', to get a little more information on this deal.

The first thing I asked him was if Brexit factored into this decision to which he replied "no, absolutely not."

He told me that as of the end of June, OTPP's infrastructure portfolio stood at $18 billion and airports are the most important sector they invest in. They love airports, work with a group of specialized airport people who are part of Teachers' airport platform to manage these assets, and they were looking to prune down sectoral and country exposure but still hold a significant stake and control governance as much as possible.

This airport group is called the Ontario Airport Investments Limited (OAIL) and was acquired from Macquarie from a previous airport deal. It is made up of five former executives from there who only specialize in airports and make sure the value creation plans are adhered to and realized.

[Note: PSP has a similar airport platform called AVIAlliance made up of former HOCHTIEF AirPort executives but they are a much bigger group.]

Don't forget, Ontario Teachers' has important airport stakes in the UK, Belgium (Brussels Airport) and recently struck a deal with ATP in Denmark to sell a stake in Copehagen Airports.

Apart from City Airport in London, which it bought along with Kuwait Investment Authority and OMERS and AIMCo, Teachers' typically has controlling interest precisely because they want to control the governance very carefully.

In this case, Ontario Teachers' owned 100 per cent at Bristol Airport.and 48 per cent of Birmingham Airport with the other partners being local governments. Following completion, Teachers' will own 70 per cent of Bristol Airport and 33.8 per cent of Birmingham Airport.

Andrew told me there was a competitive bidding process and there was a lot of interest but in the end they decided to sell stakes to Australia's New South Wales Treasury Corporation and Sunsuper Superannuation Fund because they are like-minded investors but also accepted being passive investors in the sense they would accept that Teachers' still controls the governance structure at these airports.

Andrew told me all the bidders accepted these terms which is why CPPIB and PSP didn't bid on this deal as they typically want to partner up and have a say on governance."For us, New South Wales Treasury Corporation and Sunsuper Superannuation Fund are great partners because they have capital and a long-term focus and they were willing to allow us to continue to control the assets which was critical for us to ensure we can continue to drive growth and value creation working hand in glove with airports' management teams. We are also looking forward to working with them on future deals."

What will OTPP do with the proceeds from selling these stakes? Andrew told me they were open to looking at many different investment opportunities including Canadian airports if they are sold or US airports if Trump goes through with his infrastructure plan". He added: "We are also looking at potential deals in Latin America and elsewhere."

The interesting thing we discussed is that many pensions and other investors are perfectly fine being passive investors. "We offer them expertise in airports, manage these assets on their behalf and they get exposure to an asset class they desperately want exposure in," all without paying huge fees to an external infrastructure fund.

Earlier this week, I mentioned Blackstone's co-founder and CEO Steve Schwarzman told Bloomberg that it may double its assets to $800 billion over the next five years as it looks to cement its leadership in private markets. Blackstone received a commitment of as much as $20 billion for infrastructure deals from Saudi Arabia’s Public Investment Fund.

Blackstone doesn't have infrastructure expertise. It needs to find it and hire talent that knows what they are doing in this asset class but their focus will be on asset gathering and fees (apparently, they just hired someone senior away from OMERS Borealis).

If Trump does get his infrastructure plan passed, you can bet Blackstone will get a slice of that pie (Schwarzman is tight with Trump) but I also see Ontario Teachers' and other Canadian pensions there and they might partner up with CalPERS, CalSTRS, New York Common Fund who are also looking to get into this asset class and would accept being passive investors if they partner up with Ontario Teachers' and others who have deep expertise in this field.

Alright, I'll stop there as I had a long day and I'm rambling on. I thank Andrew Claerhout for taking the time to speak with me, love our conversations, he's a sharp and interesting guy who really knows his stuff.

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