Investment demand for illiquid assets in Asia – especially those in hot sectors like clean energy – is growing ever fiercer, so tie-ups with experienced local specialists in such areas are highly prized.
Step forward Abu Dhabi Investment Authority (Adia) and Canada’s Ontario Teachers’ Pension Plan (OTPP). The two big public funds last week made a joint investment of $1.25 billion of equity share capital into renewables-focused Asian infrastructure manager Equis Development Limited (EDL), in what is seen as a pioneering move.
“The deal is a no-brainer,” Diego Lopez, managing director of US think tank Global SWF and an expert on sovereign wealth funds, told AsianInvestor. “Sovereign investors are hungry for sizeable, off-the-market deals in Asia with a sustainable angle, and the Equis platform provided all the ingredients.”
Equis has a strong track record as an infrastructure operator, he added, with its investment team comprising largely former executives from Australian infrastructure specialist Macquarie’s Asian funds division. Hence the Singapore-based firm would probably have already worked with OTPP and Adia as clients.
“We will definitely see more of these deals, as soon as they become available,” Lopez said.
The Adia-OTPP partnership has come after Equis Group stopped raising and investing private equity funds last year and consolidated its investment initiatives and management team in a Singapore corporate holding company, Equis Development.
The deal has created a corporate vehicle whereby Adia and OTPP invest as equal partners alongside Equis, said a source familiar with the agreement. It’s therefore not a typical limited partner-general partner (LP-GP) relationship, he told AsianInvestor on condition of anonymity.
Adia and OTPP have a good working relationship and their views as long-term infrastructure investors are well aligned, the executive added. In another recently agreed tie-up, Dutch pension fund manager APG and Korea's National Pension Service (NPS), also stressed the importance of trust and mutual alignment when investing into real assets.
And, like APG and NPS, Adia and OTPP had been involved in similar deals already. In August last year, the Canadian fund said it would commit up to $1 billion to the National Investment and Infrastructure Fund of India, in which Adia was already invested.
“[Equis] fits with our greenfield and renewables strategy to focus on development-stage opportunities through high-quality platforms,” said Ben Chan, Asia head of OTPP, in a statement on the deal last week. “We believe this investment will help us build scale in Asia and grow our exposure to renewables.”
The Equis investment comes as OTPP has ramped up its infrastructure and other capabilities in Asia this year. It has opened an office in Singapore and hired Bruce Crane as its first Asia Pacific head of infrastructure, who will be based there.
“BOLD AND BRAVE”
Like Lopez, the global head of sales at a US asset manager was bullish on the new tie-up.
“[Adia and OTPP are] not putting a toe in the water; they’ve gone the whole hog with this – it’s bold and brave; a really smart move,” he said. “This is about making sure that they have access to the longer-term growth and illiquidity premium in Asia."
What’s more, he added, “a deal like this gives you scale [on the ground] immediately. The best research is local research. You have to have the connections on the ground. You can’t do this investing from Boston or New York.”
Equis is currently working on 40 projects and plans to commit at least $2 billion to renewable energy and waste infrastructure assets across its target markets of Australia, Japan and South Korea over the next two years, said managing director Lance Comes. The firm is rapidly expanding its team of over 60 engineering, investment and development professionals, he added.
Equis has implemented similar strategies in the past, such as Equis Energy, a $5 billion renewable energy platform.
Meanwhile, the Adia-OTPP deal will not affect Equis’s existing LP clients, as it is completely separate from the firm’s historical fund business, said the source familiar with the deal.
Indeed, the chief investment officer of a British pension fund said: “I don’t think it will impact existing LPs, as most of the assets in the existing funds have been realised. This represents a new venture that existing LPs can consider investing in.”
Adia and OTPP both declined to comment beyond what they said in a press release last week. Equis did not respond to an emailed request for comment.