OTPP Sells a Minority Interest in Brussels Airport

Ontario Teachers’ Pension Plan just announced it has sold a minority interest of its indirect stake in Brussels Airport to Japan's GPIF and Australia's TCorp:
Ontario Teachers’ Pension Plan (Ontario Teachers’) has sold a minority interest of its indirect stake in Brussels Airport to each of TCorp and GPIF (through a StepStone managed vehicle). Ontario Teachers' will remain the largest individual shareholder in Brussels Airport.

Ontario Teachers' is Canada's largest single-profession pension plan. TCorp is the financial services provider to the New South Wales public sector in Australia and GPIF manages and invests Japan’s pension reserve fund.

"As a leading infrastructure investor with a global mandate, part of our strategy is to establish and deepen relationships with like-minded partners who bring new ideas, capital and expertise to the table. We look forward to working with our new co-investors in what is truly one of the premier capital city airports in Europe and a centre of economic activity in Belgium," said Dale Burgess, Senior Managing Director, Infrastructure and Natural Resources at Ontario Teachers'. “Under the new shareholder structure we will continue to focus on creating long-term value for all stakeholders including the 26 million passengers who fly through Brussels Airport every year."

Ontario Teachers' is the largest private investor in airports in Europe, with holdings in five freehold airports: Copenhagen Airport, Brussels Airport, Bristol Airport, Birmingham Airport and London City Airport. Ontario Teachers' has been an investor in Brussels Airport since 2011.

Stewart Brentnall, Chief Investment Officer of TCorp, said “we are delighted to invest with Ontario Teachers again. This further cements our investment partnership following our 2017 investment in Bristol and Birmingham Airports with like-minded, sophisticated investors. We share, and are committed to, common objectives, values and investment horizons. This transaction allows us to expand our global infrastructure investments, further diversify risk and provide consistent, sustainable returns over the long term.” James O’Leary, Head of StepStone Infrastructure & Real Assets, said “making a co-investment on behalf of GPIF, alongside Ontario Teachers and TCorp, is very appealing, and consistent with our model of partnering with leading investors around the world. As a responsible investor, the opportunity to co-invest in a long term, sustainable infrastructure asset in a quality market such as Belgium is very attractive. This is supported further by Ontario Teachers’ long pre-existing ownership of the asset."

About Ontario Teachers'

The Ontario Teachers’ Pension Plan (Ontario Teachers’) is Canada’s largest single-profession pension plan, with $201.4 billion in net assets at June 30, 2019. It holds a diverse global portfolio of assets, approximately 80% of which is managed in-house, and has earned an annual total-fund net return of 9.7% since the plan’s founding in 1990 (all figures as at Dec. 31, 2018 unless noted). 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 327,000 active and retired teachers. For more information, visit otpp.com and follow us on Twitter @OtppInfo.

About TCorp

TCorp provides best-in-class investment management, financial management, solutions and advice to the New South Wales (NSW) public sector. With A$107 billion of funds under management, TCorp is a top five Australian asset manager and is the central borrowing authority of the state of NSW, with a balance sheet of A$75 billion. For more information, visit www.tcorp.nsw.gov.au and follow us on LinkedIn www.linkedin.com/company/tcorp-nswtreasurycorporation

About GPIF

The Government Pension Investment Fund (GPIF) manages and invests Japan’s pension reserve fund and is the largest pension fund in the world. GPIF’s goal is to contribute to the stability of the pension scheme by investing the pension reserve in capital markets in Japan and overseas, with returns distributed to the government. GPIF is focused on long-term, diversified investments and had assets under management of ¥162 trillion as at June 2019. GPIF has given StepStone a discretionary investment mandate to focus on long term infrastructure assets as part of its overall investment programme.

About StepStone Infrastructure & Real Assets

StepStone Infrastructure & Real Assets ("SIRA") is part of StepStone Group, a global private markets investment firm providing solutions for the world’s most sophisticated investors using a highly disciplined research-focused approach that prudently integrates fund investments, secondaries, and co-investments. With more than $280 billion of total capital allocations as of September 30, 2019, including $58 billion in assets under management, StepStone covers a broad spectrum of opportunities in private markets across the globe from its 19 offices in 13 countries. As of September 30, 2019, SIRA managed or advised on more than $29 billion of private capital allocations and is one of the most active infrastructure investors globally, focused on supporting investors at all stages of their investment programs. For more information, please visit www.stepstoneglobal.com.
This afternoon, I had a nice chat with Dale Burgess, Senior Managing Director, Infrastructure and Natural Resources at Ontario Teachers'.

Dale shared a few interesting things with me:
  • Teachers' Infrastructure portfolio has a "very sizeable" investment in European airports and wants to reduce its stake to invest in infrastructure elsewhere.
  • Importantly, Dale told me that they're not looking to divest from infrastructure assets and are "net buyers" as Teachers' is "under-allocated to Real Assets" (mostly Real Estate and Infrastructure) and wants to increase its Real Asset allocation in the coming years (from current 26% to over 30%).
  • He said they are fortunate to partner up with GPIF and TCorp on this deal as they are like-minded partners who they have worked with in the past. Recall, in October 2017, Teachers sold a minority stake in Bristol and Birmingham airports to GPIF, TCorp and Australia's Sunsuper. Again, this was the first phase of Teachers' reducing its massive European airport exposure.
  • In each deal, however, you will note Teachers' maintains its majority stake and is the "lead investor". Dale explained that Teachers' has a dedicated team of airport specialists based in London that manages all operational aspects of these airports. 
  • In fact, Ontario Airports Investments (OAIL) is a wholly controlled subsidiary of Ontario Teachers’ Pension Plan that manages and oversees its airport investments across Europe. Airports currently under active management by the London-based team include Birmingham, Bristol, Brussels, Copenhagen and the recently acquired London City.
  • So GPIF and TCorp don't just gain access to prized airports in Europe, they also gain the expertise of Ontario Airports Investments which they need to properly manage these assets.
  • I asked Dale where they will be deploying their funds going forward and specifically mentioned Asia. He said they have a team in place in Latin America (I covered the recent IDEAL deal in Mexico here) and are in the process of building out a team based in Asia (right now, Hong Kong office only houses an equities team). 
  • He told me "there's no question" Asia is where growth will be and "under Jo Taylor (Teachers' new CEO), the organization will build its global brand." He also said partners like GPIF and TCorp will be instrumental in helping Teachers' invest across Asia. I told him they can literally fly their airport experts to Asia to evaluate deals there and he agreed.
  • What else? I asked him if Teachers' Infrastructure team is doing any greenfield investments and he told me they're looking at greenfield and renewable projects where they'd like to take development risk and the person in charge of this is Chris Ireland. Another team member, Maria Morsillo, is in charge of value creation and analytics (see the entire team here). These two individuals took over from Olivia Steedman who is now leads Teachers' Innovation Platform (TIP). 
  • Lastly, I also had a frank discussion with Dale on the ridiculously high valuations on prized infrastructure assets and specifically mentioned the London City Airport deal which some experts later told me was done at "nosebleed valuations". But I also told Dale with interest rates at record low levels, especially in Europe where they're negative, there's not much of a choice. He agreed and told me that low rates present challenges to all investors and "we're all in the same boat and need to be cognizant of the risks." He also said however, as bonds and equities run up to record levels, investors are getting nervous and need to allocate more to real assets which offer safe, predictable yields.
On that last point on valuations, you have to wonder why Australia's Sunsuper which along with GPIF and TCorp bought a minority stake in Bristol and Birmingham airports back in 2017, decided not to partake in this deal.

Last March, Macquarie Infrastructure and Real Assets (MIRA) sold its 36 percent stake in Brussels Airport Co to a consortium of Queensland Investment Corp, Swiss Life, and APG Asset Management.

MIRA did not disclose the financial terms of this deal but several sources familiar with this deal told me it was sold at 20x EBITDA multiple, which is insanely high for an infrastructure asset (private infrastructure valuations are typically in the 14-16x range which is still high).

That's where we are folks, with interest rates at negative and record low levels across the world, valuation models are being stretched and the danger is what happens if or when rates back up significantly. In the meantime, institutional investors need to play the game or risk being left behind.

Anyway, I thank Dale Burgess for taking the time to speak with me, I really appreciate it.

Lastly, in my last comment on University Pension Plan Ontario, I failed to mention the board of directors has been selected. Jim Leech was kind enough to send me this document introducing UPP's Board and note Ron Mock, OTPP's just retired CEO, will be part of it. I wish him a nice retirement.

Below, CPPIB's Alain Carrier, OMERS's CEO Blake Hutcheson, PSP's CEO Neil Cunningham and Sophia Cheng, CIO at Cathay Financial Holdings took part in a great panel discussion at the Milken Institute last October discussing stewarding long-term assets.

I've referred to this discussion before but wanted to bring it up again as Neil Cunningham addresses the issue of high valuations and even if you make the right assumptions, it doesn't matter because you still need to buy quality assets (only looking at valuations makes you a "non-buyer" which simply isn't an option). All three Canadian leaders along with Sophia Cheng address practical realities, it's a great discussion worth listening to.