OMERS Sells Transgrid Stake to Australia's Future Fund
The Future Fund Board of Guardians (FFBG), Australia’s sovereign wealth fund, has acquired a 9.995 per cent equity interest in Transgrid, marking a notable move into energy infrastructure alongside Ontario-based pension giant OMERS, according to a press release issued by OMERS.
While the the transaction has now closed, the terms of the deal remain confidential. Following the deal, OMERS will retain its existing 9.995 per cent direct interest while also managing the new Future Fund stake under its asset management platform.
Transgrid operates the high-voltage electricity transmission network across New South Wales and the Australian Capital Territory. As the backbone of Australia’s National Electricity Market, it plays a critical role in the decarbonization of the country’s energy grid by investing in essential new infrastructure.
OMERS emphasized the alignment of values between the two institutions, noting the partnership reflects an increasing appetite among global institutional investors for stable, long-duration infrastructure assets that are both inflation-resilient and socially impactful.
“For over 25 years, OMERS has been a direct investor in infrastructure. The asset class has provided OMERS with strong and predictable returns and the assets in our global portfolio – including firms such as Transgrid – have a strong social ethos and a purpose that fits the requirements of delivering for our members, partners and communities in which we invest," said Ralph Berg, OMERS’ chief investment officer.
"We are very proud to welcome Future Fund, with whom we share similar values and a common mission, into our Strategic Partnership Program, where they are now a co-investor in Transgrid and can access our excellent asset management platform and capabilities," he added.
Meanwhile, Michael Hill, executive vice president and global head of OMERS infrastructure, highlighted the depth of OMERS’ commitment to the Australian market, noting the Canadian penion fund has "deployed over AUD 4 billion into energy, transport and digital assets. We are delighted to have Future Fund investing alongside us in Transgrid, one of the essential community assets in our portfolio that are critical contributors to the delivery of consistent and reliable returns to OMERS members," he said.
As for the Future Fund, the deal aligns with its strategy to invest in real assets that offer protection against macroeconomic volatility.
"The transition requires the support of patient, long-term investors and we believe our capital will be well rewarded by supporting Transgrid’s growth," said Ben Samild, chief investment officer of the Future Fund. "Large infrastructure assets such as Transgrid help us achieve our Investment Mandate to deliver attractive risk adjusted returns and protect the portfolio from higher inflation, interest rates and currency volatility.”
Earlier today, OMERS Infrastructure issued a press release stating Future Fund and OMERS complete transaction for 9.995% of Transgrid:
This is an excellent transaction between Future Fund and OMERS to co-own a large stake in Transgrid, Australia's largest electricity transmission network.The Future Fund Board of Guardians (FFBG) has acquired a 9.995% stake in Transgrid from OMERS. Following the transaction, OMERS will retain a 9.995% stake in Transgrid and manage the other 9.995% interest on behalf of FFBG. The transaction has closed with financial terms not being disclosed.
Transgrid operates and manages the high voltage electricity transmission network in New South Wales and the Australian Capital Territory. It is the largest electricity transmission network in Australia, providing the backbone of the National Electricity Market, and is a critical enabler of the decarbonization of the Australian electricity sector through its investment in new transmission infrastructure.
OMERS quotes
Ralph Berg, Chief Investment Officer, OMERS, said: “For over 25 years, OMERS has been a direct investor in infrastructure. The asset class has provided OMERS with strong and predictable returns and the assets in our global portfolio – including firms such as Transgrid – have a strong social ethos and a purpose that fits the requirements of delivering for our members, partners and communities in which we invest. We are very proud to welcome Future Fund, with whom we share similar values and a common mission, into our Strategic Partnership Program, where they are now a co-investor in Transgrid and can access our excellent asset management platform and capabilities.”
Michael Hill, Executive Vice President and Global Head of OMERS Infrastructure, said: “With a dynamic team in Sydney, supported by our colleagues globally, OMERS Infrastructure has built a strong presence in Australia. Now into our second decade of investment, we have deployed over AUD 4 billion into energy, transport and digital assets. We are delighted to have Future Fund investing alongside us in Transgrid, one of the essential community assets in our portfolio that are critical contributors to the delivery of consistent and reliable returns to OMERS members.”
Christopher Curtain, Senior Managing Director & Head of Asia-Pacific, OMERS Infrastructure, said: “OMERS first invested in Transgrid in 2020, recognising the high-quality, critical infrastructure services it provides to Australian businesses and communities. We are proud of our support of Transgrid over the past 5 years as it has been leading an unprecedented transition of the Australian energy sector, and we look forward to continuing to do so through our new partnership with Future Fund.”
Future Fund quotes
Ben Samild, Chief Investment Officer of the Future Fund, said: “Our investment in Transgrid is in line with our risk and return objectives and reflects our consideration of the opportunities of the energy transition. The transition requires the support of patient, long-term investors and we believe our capital will be well rewarded by supporting Transgrid’s growth. Large infrastructure assets such as Transgrid help us achieve our Investment Mandate to deliver attractive risk adjusted returns and protect the portfolio from higher inflation, interest rates and currency volatility.”
Peter McCosker, Director, Infrastructure at the Future Fund, said: “We are very pleased to have secured an investment in Australia’s premier electricity transmission business. We look forward to working constructively with the Transgrid team, our co-securityholders and all Transgrid’s stakeholders to deliver long-term, sustainable outcomes for the business whilst facilitating Australia’s energy transition. This investment is a valuable addition to the Future Fund’s infrastructure holdings and will diversify our portfolio and help deliver on our investment mandate.”
After the Commonwealth Government was able to retire net debt, it set aside money in an asset fund to prepare for challenges of the future, challenges like the ageing of the population.
It was a commitment from one generation to help defray the costs falling on future ones.
The Future Fund is Australia’s sovereign wealth fund. It invests for the benefit of future generations of Australians. This book tells the story of the Future Fund’s creation, its governance and its investment strategy and performance.
The $204 billion Future Fund has performed strongly. It has returned 10.8% per annum over the last 10 years and earned more than $143 billion on the original $60.5 billion in seed capital contributed by Government.
Reflecting this success, the Future Fund Board of Guardians and the Future Fund Management Agency have been entrusted with the management of five additional funds. Today those funds are collectively valued at over $48 billion.
With the Future Fund we are investing for the benefit of future generations of Australians. With the other Funds, we are investing to support medical research, drought and emergency response, farming communities, important initiatives in the Indigenous community and the National Disability Insurance Scheme.
Together, the Board and the Agency manage over a quarter of a trillion dollars on behalf of the Commonwealth Government. We are the Government’s single largest financial asset.
All the capital is managed by the Board and Agency on behalf of the Australian Government and through it the Australian people.
The Board of Guardians is committed to maintaining the organisation as a high performing, respected and independent investment institution, a vital part of Australia’s public finances and a globally respected sovereign wealth fund.
Understanding why the Future Fund was created and how it has navigated the challenges of the last 15 years is important to understand how the organisation operates today and how it shapes our future.
We take our responsibility as Australia’s sovereign wealth fund very seriously. We have always stewarded each Fund entrusted to us with diligence and great care on behalf of the people of Australia. We will continue to focus on our purpose of investing for the benefit of future generations of Australians over the years to come.
And here is the foreword from CEO Dr. Raphael Arndt:
The Future Fund is a purpose-driven organisation that has held the same mission since its inception 15 years ago – investing for the benefit of future generations of Australians.
Our incredible journey so far has been book-ended by two major world events: the global financial crisis and the COVID-19 pandemic. The years between saw the Future Fund mature and evolve into its current status as a sophisticated, globally respected $252 billion institution.
The strong investment performance across all six of the mandates managed by the Future Fund Board of Guardians, and the professional and disciplined approach which the Future Fund Management Agency has applied to its work has attracted bipartisan support throughout its 15-year history.
But the Future Fund’s achievements extend well beyond the strong long-term investment performance. The Future Fund has developed a new way of investing which brings diverse teams together to manage a portfolio as a whole. This whole portfolio approach – which is recognised around the world – has been successful due to the organisation’s strong culture and focus on the mantra of One Team, One Purpose.
This important book sets out the story of how that culture was developed and recounts the decisions made by those working for the Board of Guardians and the Future Fund Management Agency which established and supported the unique culture and singular focus on investment performance.
Those of us at the Future Fund today build on the legacy of those who came before us. This book provides a guide to those who will pick up the baton and continue to build on the Future Fund’s success – investing for future generations of Australians.
To recap, the Future Fund is investing for the benefit of future generations of Australians. With the other Funds, it is investing to support medical research, drought and emergency response, farming communities, important initiatives in the Indigenous community and the National Disability Insurance Scheme.
Like I said, take the time to read the book here, this is an extremely interesting organization.
The more I read about it -- how it was set up to manage funds independently of all governments -- it certainly has the governance foundations of Canada's Maple Eight but with a much broader mandate.
In fact, I think we should create a similar Future Fund in Canada to manage money for future generations as well as for medical research, disability insurance and more.
Why am I sharing so much about Australia's Future Fund here? Because OMERS couldn't have picked a better partner to sell a stake in Transgrid, all part of its Strategic Partnership Program headed up by Irini Kalamakis where they co-invest with like-minded partners and manage third party assets on their behalf.
OMERS CIO Ralph Berg summed it up well in the press release:
“For over 25 years, OMERS has been a direct investor in infrastructure. The asset class has provided OMERS with strong and predictable returns and the assets in our global portfolio – including firms such as Transgrid – have a strong social ethos and a purpose that fits the requirements of delivering for our members, partners and communities in which we invest. We are very proud to welcome Future Fund, with whom we share similar values and a common mission, into our Strategic Partnership Program, where they are now a co-investor in Transgrid and can access our excellent asset management platform and capabilities.”
Electricity transmission is the future. The electrification of everything and the need for clean energy to decarbonize economies ensures the long mega trend.
An asset like Transgrid fits perfectly into OMERS and the Future Fund's portfolio.
As Future Fund CIO Ben Samild noted in the press release:
“Our investment in Transgrid is in line with our risk and return objectives and reflects our consideration of the opportunities of the energy transition. The transition requires the support of patient, long-term investors and we believe our capital will be well rewarded by supporting Transgrid’s growth. Large infrastructure assets such as Transgrid help us achieve our Investment Mandate to deliver attractive risk adjusted returns and protect the portfolio from higher inflation, interest rates and currency volatility.”
Michael Hill, Global Head of OMERS Infrastructure also noted how important Australia is to its operations:
“With a dynamic team in Sydney, supported by our colleagues globally, OMERS Infrastructure has built a strong presence in Australia. Now into our second decade of investment, we have deployed over AUD 4 billion into energy, transport and digital assets. We are delighted to have Future Fund investing alongside us in Transgrid, one of the essential community assets in our portfolio that are critical contributors to the delivery of consistent and reliable returns to OMERS members.”
Although financial details are not available, it is worth noting the approximate enterprise value of Transgrid, the electricity transmission network in New South Wales, Australia, was around AUD 10.258 billion (CAD 9.9 billion in November 2015 when CDPQ and a consortium of investors acquired a 99-year lease of the network. This transaction involved the purchase of a significant stake, leaving CDPQ with a 25% equity stake in the project, which at the time represented an investment of AUD 1.2 billion (CAD 1.15 billion).
That was ten years ago so the enterprise value has risen significantly since then.
In 2020, OMERS acquired a 19.99% stake in Transgrid from Wren House Infrastructure Management, which is part of the state-owned Kuwait Investment Authority.
As of 2022, the ownership structure of Transgrid was:
- UTA Power Networks Trust, of which Utilities Trust of Australia is the substantial majority unit holder (22.505%)
- Spark Infrastructure (15.01%)
- Tawreed Investments (Abu Dhabi Investment Authority, 19.99%)
- Caisse de depot et placement du Quebec (22.505%)
- OMERS (19.99%)
Keep in mind, in December 2021, KKR, Ontario Teachers’ Pension Plan and PSP Investments acquired Spark Infrastructure in an all-cash transaction for approximately A$5.2 billion.
So effectively Canada's Maple Eight own a huge stake in Australia's Transgrid and now Australia's Future Fund owns a slice of this important asset.
And in 2023, Transgrid began work on Australia’s largest electricity transmission project.
Anyway, I think this is a great deal for all parties, OMERS Infrastructure will use the proceeds to invest elsewhere and continue to effectively manage its stake along with its partners and co-owners.
Below, Transgrid operates and manages the high voltage electricity transmission network in NSW and the ACT, connecting generators, distributors and major end users. By leading the transition to a clean energy future, Transgrid aims to make a better power system for Australians.
Also, NSW Government has reached a major milestone in the development of the Hunter Transmission Project, with EnergyCo signing a commitment deed with Transgrid as preferred network operator.
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