Ontario Teachers' Pension Plan is getting a new partner in its investment in a growing European airport that is in the midst of an expansion.Reuters also reports, Danish pension fund to buy stake in Copenhagen Airports in $1.6 billion deal:
Part of Denmark's Copenhagen Airports is trading hands as an infrastructure division of Macquarie sells a 27.7-per-cent stake to the country's state pension plan known as ATP Group, for 9.77 billion Danish Krone ($1.9-billion). Combined with the 30-per-cent stake Teachers owns, this will give pension funds control over 57.7 per cent of the flight hub. The Danish government will continue to own a nearly 40-per-cent stake.
The deal showcases the value of relationships among the world's top private market investors. Macquarie had been looking sell off its holding in the airport for several months and was required to first offer the stake to Teachers, because of a privilege called pre-emptive rights. Teachers, which also owns portions of a variety of other airports around Europe, did not want to enlarge its already sizable investment. But the Toronto-based pension fund was able to act as a matchmaker between ATP and Macquarie to secure a like-minded partner that is well-known and respected in its home Danish market. This could be an advantage as the airport continues an extensive capital investment and renovation plan amid rigorous regulatory oversight.
In infrastructure investing, being aligned with a partner that has similar aspirations, expectations and growth targets for the asset is desirable. Copenhagen is currently seeking to boost its status as a European hub airport, with the aim to increase the number of flights as well as domestic and international passengers moving through the terminal each year. It plans to boost capacity to 40 million passengers annually from 29 million, and at the same time lower some fees.
"The airport in Copenhagen is key infrastructure in Denmark and we are proud to be one of its stewards going forward," Christian Hyldahl, CEO of ATP Group, said in a statement. "We are keen to work together with all stakeholders to further develop the airport and contribute to its long-term continuation as a critical transportation hub in northern Europe to the benefit of both Danish society as well as the members in ATP."
Deals for infrastructure around the world are increasingly competitive and the utility assets where cash-flow streams are contracted and regulated are among the most appealing to investors. For pension funds looking for a proxy to fixed-income investments in a low-interest-rate environment, these holdings have a lot of appeal. Airports are a little different because they are high profile, relatively scarce and offer the potential for growth not only by increased global travel but also through the development of retail offerings and other services such as parking and on-site hotels.
Teachers and Macquarie have a long history working together on airport deals. Teachers' bought into Copenhagen's airport in 2011 when it agreed to trade stakes with a division of Macquarie. Teachers gave over its 11-per-cent holding in Sydney, Australia's airport and paid nearly $800-million (Australian) ($780-million) in exchange for stakes in Brussels and Copenhagen airports.
Since then, Teachers has had an active airport investment strategy, building up a dedicated aviation subsidiary called Ontario Airports Investments Ltd. to oversee its portfolio, as well as source other acquisition opportunities. It now owns parts of London City, Bristol and Birmingham airports, as well as Brussels and Copenhagen.
Danish pension fund ATP has agreed to buy a 27.7 percent stake in Copenhagen Airports (CPH) from Australia’s Macquarie for about 9.8 billion Danish crowns ($1.57 billion).How did Ontario Teachers' strike a deal with Denmark's ATP for this particular airport deal? I suspect this man had something to do with this deal (click on image):
The transaction depends on approval by the Danish and European Union authorities and is expected to be completed in the fourth quarter, the parties said in a joint statement.
ATP estimated the offer price would be about 5,700 crowns per share, but said this could fluctuate depending on the date of completion.
Shares in the airport company rose as much as 12.3 percent after the announcement to 5,750 crowns per share. It closed at 5,620 crowns on Thursday.
Macquarie has invested more than 10 billion crowns during its 12 years of ownership in the company which owns Kastrup airport, the main international airport serving Copenhagen.
The Danish state owns 39.2 percent of the firm and Denmark’s Finance Minister Kristian Jensen said on Twitter he was “very satisfied” that the future ownership was clarified and was looking forward to working with the new shareholders.
Canadian pension fund Ontario Teachers’ Pension Plan (OTTP) holds a 30 percent stake in the airport company.
ATP is one of the best pension plans in Europe and the world. The last time I covered ATP was in a comment explaining how it's bucking the hedge fund trend. Lars Rohde, the former CEO of ATP, became the governor of the country’s national bank in 2013.
One thing ATP and Ontario Teacher's Pension Plan (OTPP) have in common is matching assets with liabilities. OTPP's Infrastructure chief, Andrew Claerhout, is taking a new approach, but the name of the game remains the same, namely, how to best match assets with liabilities with the least amount of volatility over the long run.
Again, what are pension plans all about? Matching assets with liabilities. Pension liabilities have a long duration, going out 75+ years, but most assets are low duration and the ones that are long like a 30-year long bond, don't offer the actuarially required yield to ensure pensions will remain solvent over a long period.
In the last two decades, Canada's large pensions have been moving aggressively into private markets like private equity, real estate, infrastructure and natural resources which include farmland and timberland.
Real estate and infrastructure offer great cash flows and they are long duration assets, offering yields in between stocks and bonds, perfect for fully-funded or close to fully-funded pensions looking to reduce public market risk and match their long-dated liabilities.
I believe over the next ten or twenty years, infrastructure will take over real estate as the most important asset class for Canada's large pensions.
Why infrastructure? Apart from being able to match long-dated liabilities, infrastructure offers these large pensions scalability, meaning they can put a huge chunk of change to work relatively quickly. Also, unlike private equity, they invest in infrastructure directly, paying no fees to outside managers.
Why bother trying to invest $50 or $100 million tickets to some hedge fund or private equity fund when you can write a $300, $500 or even a billion dollar ticket to own a stake in some coveted infrastructure asset which is already operational (brownfield), has well-known revenue streams, and very realistic growth projections?
Fewer headaches, more secure and less volatile cash flows (yield) and you can put a lot of money to work relatively quickly.
Are there risks to infrastructure? You bet, regulatory risks and currency risk. The strong Canadian dollar has already impacted Ontario Teachers' mid-year results and will impact its second half results too.
But if you ask me, now is the time to pounce on foreign assets, using the CTA momentum-chasing artificially high loonie to pounce on foreign assets. This isn't the case here, but now is the time for Canada's large pensions to crank it up, diversifying in private and public markets outside Canada.
By the way, Ontario Teachers' isn't the only large Canadian pension that loves airports or airport related investments. Earlier this month, Reuters reported that Canadian pension fund Caisse de depot et Placement du Quebec (CDPQ) and private equity fund Ardian entered into exclusive talks to acquire a significant stake in airport ground support firm Alvest:
Canada’s second-biggest public pension fund and the French private equity investor are set to acquire the stake from French Sagard Private Equity Partners. The terms of the deal were not disclosed.And in May, Barbara Shecter of the National Post reported, Pension funds circle around airports amid speculation about a Canadian sale:
Alvest designs, manufactures and distributes technical products for the aviation industry and has more than 1,800 employees. It operates 10 factories in the United States, Canada, France and China.
Canadian pension funds still love airports, judging by the latest deal of the Public Sector Pension Investment Board.In short, Canada's large pensions know airports, love airports, and they almost all have some platform made up of outside experts to manage these assets properly.
On Tuesday, PSP Investments said it purchased a 40 per cent interest in Aerostar Airport Holdings LLC, operator of the Luis Munoz Marin International Airport in San Juan, Puerto Rico.
The balance of Aerostar is held by Grupo Aeroportuario del Sureste S.A.B. de C.V. (ASUR), which already owned 50 per cent and picked up an additional 10 per cent stake.
The seller was funds managed by Oaktree Capital Management L.P., and the combined new purchases by PSP and ASUR were valued at US$430 million.
“This acquisition is an excellent fit with PSP Investments’ long-term investment philosophy and leverages the capabilities of AviAlliance, our airport platform,” said Patrick Charbonneau, managing director of infrastructure investments at PSP.
AviAlliance holds interests in the airports of Athens, Budapest, Düsseldorf and Hamburg. With the latest investment in Aerostar, airports will represent more than 15 per cent of PSP Investments’ infrastructure portfolio, a spokesperson for the pension investment manager said.
The latest deal comes amid speculation that the Canadian government is mulling the sale airports, or stakes in them, to private interests to raise funds. Toronto’s Pearson International Airport has been valued at $5 billion, according to media reports.
Canada Pension Plan Investment Board chief executive Mark Machin told the Financial Post earlier this year that CPPIB would look at any Canadian airport put on the block.
“We know airports, we like airports, we’d be interested if something happened,” he said during an interview in March.
A group of Canadian pension investment managers including the Ontario Teachers’ Pension Plan, OMERS, and Alberta Investment Management Corp. (AIMCo) joined a consortium last year to purchase London City Airport.
Teachers’ had already acquired a 39 per cent stake in Brussels Airport, and a 30 per cent of Denmark’s Copenhagen airport in 2011.
I can also tell you while Greece is still a mess, the Athens airport is booming, doing extremely well, and PSP was smart to have purchased a stake in it years ago.
All in all, this is a great deal for ATP and OTPP, two of the very best pension plans in the world looking to match assets and liabilities very closely.
Below, inside Copenhagen Airport located just outside Copenhagen in Denmark (actually located in Kastrup a town located in the Tårnby municipality and a small piece in Dragør). This footage was taken early morning in the international departures area of the airport past security control where only passengers have access.