OMERS Looking to Double Its Massive Infra Portfolio

Annesley Wallace and Alastair Hall sat down with Infrastructure Investor’s Zak Bentley to talk about OMERS Infrastructure’s strategy, assets, growth, and third-party capital program. You can read the full story here and below (added highlights are mine):

This is an excellent in-depth interview on OMERS' Infrastructure's growth plans and I urge you all to download and read the full cover story here.

OMERS Infrastructure is a global powerhouse which manages $32 billion in 12 countries and has 20+ years of direct investing experience (as at December 31, 2021; includes third party money):

Annesley Wallace is the Executive Vice President and Global Head of OMERS Infrastructure and it is worth going over her bio:

Annesley is Executive Vice President and Global Head of Infrastructure. Her mandate includes the leadership and performance of the global OMERS Infrastructure team and portfolio.

Annesley has deep expertise in investment strategy and execution, with over 15 years of experience leading mega projects, billion-dollar transactions, and complex organizations.

She first joined OMERS in 2012, where she played a key leadership role in the infrastructure investment team. For over six years, Annesley was responsible for delivering strong annual returns for OMERS Infrastructure Americas. In this role, she led the investment in Bruce Power, OMERS largest private investment to date.

More recently, Annesley also served as Chief Pension Officer, overseeing front-line service to OMERS 500,000 pension plan members.

Prior to joining OMERS, Annesley was Vice-President, Operations at SNC-Lavalin, where she led a series of acquisitions in the Energy and Infrastructure business.

Annesley holds a Bachelor of Science in Mechanical Engineering and a Master of Science in Mechanical and Materials Engineering from Queen's University, as well as a Master of Business Administration degree from the Schulich School of Business at York University. She is also a registered Professional Engineer in Ontario and a former recipient of Canada’s Top 40 Under 40. Annesley currently serves on the Boards of Bruce Power and the Toronto Region Board of Trade.

Alastair Hall is Senior Managing Director, Europe for OMERS Infrastructure and you can read more about him below:

Alastair is Senior Managing Director, Europe for OMERS Infrastructure, and is based in London where he oversees the organization’s investment activity and team in the region.

Since joining OMERS in 2014, Alastair has played a critical role in the growth of the European team. In his most recent role, he was focused on advancing OMERS Infrastructure’s global investment strategy and leading the third-party capital program. Previously, Alastair had been responsible for investing across the European energy, utilities and renewables value chain during which he led or managed OMERS’s investments in Ellevio, Thames Water, Net4Gas, Associated British Ports, High Speed 1, Caruna, SGN and MapleCo.

Prior to joining OMERS, Alastair worked in investment banking at Deutsche Bank and Bank of America Merrill Lynch advising clients on European utilities and infrastructure transactions. He holds an MA in Philosophy, Politics and Economics from the University of Oxford. 

These are two very accomplished and relatively young infrastructure professionals leading one of the most important infrastructure portfolios in the world.

Now, let's go over some of the critical elements from Zak Bentley's Infrastructure Investor comment:

  • Wallace reveals their intention to double the infrastructure portfolio from C$32 billion ($25.1 billion; €23.8 billion) of assets under management to approximately C$65 billion in 2027, lifting the allocation from 20 percent to 25 percent.That will be a significant boost to what is already the world’s largest infrastructure allocation, as a percentage of overall AUM, according to Infrastructure Investor's Global Investor 50 ranking.
  • The anticipated growth is centered around what Wallace calls a “refreshed strategy” focused on five themes: energy transition, mobility, connections (digital infrastructure), natural systems (water, distribution) and community (social infrastructure).  “We fundamentally  believe that there is going to be continued disruption in the infrastructure sector and the pace of change is likely to accelerate. So how do we best position ourselves to be ahead of the curve so that we’re identifying what are going to be the next core infrastructure investments? And how do we best position ourselves to be ready to invest when we feel they meet those important infrastructure investment criteria?”
  • Wallace also suggested there are some subsectors where OMERS will be reducing its exposure on the road to 2027, like roads and airports although if there are good opportunities there, they will look into it. She stressed this decision has nothing to do with Covid but rather the evolution of a portfolio that is looking to diversify where good opportunities lie. "We see that opportunity less in some of the traditional sectors that just have more competition because they are either core or super-core types of investments." 
  • She states: “If I take mobility as an example, I think some of the things in the mobility space that we’re keen to continue to invest in would be the rail sector, for example,” says Wallace. “We’re also interested in the e-mobility space, and we think there will be significant growth in those opportunities going forward. We’re probably less likely to continue to put more money into more traditional transportation, whether that’s roads or airports – not that we wouldn’t.” (see my recent comment on how OMERS, GIC and Wren House just acquired Direct ChassisLink, one of the largest chassis lessors in the US).
  • In terms of regions, Wallace touts Australia where OMERS Infrastructure just announced a second agreement of 2022 to acquire Stilmark, an independent Australian developer, owner and operator of mobile tower assets. They are now looking to diversify the APAC offering beyond Australia, including in India, where they have made significant inroads in recent years (see recent IndInfravit deal).

For his part, Alistair Hall discusses how OMERS Infrastructure manages third party money successfully:

  • Hall notes many of their clients are still investing in traditional infrastructure funds but they offer something extra and there remain significant advantages for those in the program to deploy with OMERS, including a no-carry clause. “We’re wanting to maximise our governance at every single opportunity, bringing capital behind us as well as alongside us in partnerships." He adds: “We offer the ability of those investors to actually deploy capital alongside specific investment teams or things that they are trying to prioritize, so all the disadvantages of investing in a blind pool go away. We allow them to invest significant capital in that single investment behind us.”
  • The Global Strategic Investment Alliance (GSIA) which was formed in 2013 with four Japanese investors has grown. It is now part of a wider platform dubbed the Strategic Partnership Program (SPP), managing about C$8 billion. Of OMERS Infrastructure’s 33 assets, nine are supported by investors within the SPP.
What else? I noticed that OMERS Infrastructure is busy buying and selling assets but always with a disciplined approach:
“There are some investments that we have in the portfolio that we’ve now held for almost 20 years, and we may continue to hold them for another 20 years,” Wallace says. “We have also now taken a more proactive approach to our capital rotation strategy and some of the things that we think about in terms of when it might be the right time to exit an investment. One is if we think that the market will realise more value than what we see for the risk profile of the investment. 
“Another that is incredibly important to us is whether we see continued opportunity to really drive incremental value in the investment. We prefer to be invested in companies where there is a real opportunity for us to help add value. Not every infrastructure opportunity offers that and not every infrastructure investor prefers that type of investment.

“The last is from a portfolio fit perspective. We look at our capital allocation and we want to remain well diversified by sector [and] by geography; and so, in some cases, that could also lead us to exit an investment.”
In terms of clean energy, OMERS is not willing to use the energy transition bucket to buy into the largest renewables assets:
 “I think our approach has been to remain incredibly disciplined around pursuing those types of investments, as opposed to trying to ultimately pay a market price,” says Wallace. “We’ve looked at each of those opportunities and really understood how we see value and where we think we can add the most value.”
Wallace and Hall discuss the recent Groendus deal which they acquired along with APG:
Wallace believes Groendus shows how one can be successful in the energy transition space without compromising on targeted returns. 
Hall adds: “Given the scale of the need for decarbonisation, both in the Netherlands but across Europe and the world, we believe that in many cases it’s business-to-business investment platforms that will holistically design, build and operate assets that help with their customers’ decarbonisation challenges [these] will be leading the next wave of investment in getting towards net zero.” 
The article also notes when it comes to clean power, OMERS stands out in the infrastructure world because it is the only major infrastructure investor to own a nuclear power plant since its 2003 investment in Bruce Power, the world’s largest operating nuclear power facility at 6.4GW.
Annesley Wallace led the investment in Bruce Power back then, OMERS' largest private investment to date.
Take the time to read the full story here to really appreciate OMERS Infrastructure's portfolio and why it is widely considered to be one of the best infrastructure portfolios in the world.

The fact that OMERS Infrastructure is able to garner significant third party money from major global institutional investors also tells you a lot about their credibility, track record and approach. 

Lastly, in related news, Northvolt today announced the signing of a $1.1 billion convertible note to finance its expansion of battery cell and cathode material production in Europe to support the rapidly expanding demand for batteries.

Investors participating in the capital raise were AMF, AP funds 1-4 (via the co-owned company 4 to 1 Investments), ATP, Ava Investors, Baillie Gifford, Compagnia di San Paolo through Fondaco Growth/Fondaco Fund, Folksam Group, Goldman Sachs Asset Management, IMAS Foundation, Olympia Group, OMERS Capital Markets, PCS Holding, Swedbank Robur, TM Capital and Volkswagen Group.

Peter Carlsson, Co-Founder and CEO of Northvolt, commented: “We are proud and thankful for the support and trust from these world-class investors and partners. We will continue to work hard to deliver on the promise we have made to them to build the world’s greenest battery.”

With this capital raise, Northvolt has since 2017 secured close to $8 billion in equity and debt to deliver on its plans to establish a supply of sustainable batteries to enable the decarbonization of society.

Presently, the company is developing manufacturing capacity to deliver on $55 billion in orders from key customers, including BMW, Fluence, Scania, Volvo Cars, and Volkswagen Group. A key aspect to Northvolt’s strategy involves establishing in-house competences and presence throughout the battery value chain, including cathode material production and recycling. Through its large-scale recycling program, Northvolt intends to enable 50% of its raw material requirements to be sourced from recycled batteries by 2030.

“The combination of political decision making, customers committing even more firmly to the transition to electric vehicles, and a very rapid rise in consumer demand for cleaner products, has created a perfect storm for electrification,” said Peter Carlsson.

Northvolt produced its first battery cell at the Northvolt Ett gigafactory in Skellefteå, just before New Year's Eve 2021, and made the first commercial deliveries from the factory during the spring of 2022.

Through 2021, around 1,800 people were recruited into Northvolt, and it continues to onboard around 150 people per month to support its plans. Key projects of the company include the continuous ramp up and expansion of Northvolt Ett, as well as the establishment of the Northvolt Volvo Cars joint venture gigafactory in Gothenburg, Sweden, and its third gigafactory, Northvolt Drei, in Heide, Germany. In parallel, a cathode factory, Northvolt Fem, is being established in Borlänge, Sweden.

Goldman Sachs Bank Europe SE, J.P. Morgan AG, and Morgan Stanley & Co. International plc act as joint placement agents to Northvolt.

I've covered how OMERS co-led an earlier $2.75 billion funding round for Northvolt here and I am not surprised they are re-upping. This is an incredible company which is growing very fast and it is already building the manufacturing capacity to deliver billions in orders from major car companies.

If you want a glimpse into the future, check out where OMERS Capital Markets is investing right now.

Below, Germany's BMW recently said that production has formally begun at a new plant in China with an investment of 15 billion yuan ($2.24 billion) as the carmaker accelerates electric vehicle (EV) production. Sweden’s Northvolt AB, whose customers include BMW AG and Volkswagen AG, is planning to go public within the next two years as battery demand for electric vehicles booms.