IPIF: Democratising unlisted infra for Australia's SMSFs

As Melbourne-based fund-of-funds manager Infrastructure Partners Investment Fund (IPIF) is in a A$250 million ($167.3 million) round of fundraising for its IPIF Core platform, the manager is considering future possibilities for direct investing, IJGlobal has learned.

IJGlobal spoke with the IPIF team, led by CEO Nicole Connolly, as they unveiled their latest research, finding that Australia's self-managed super funds (SMSFs) could have gained "an average annual performance increase of 45bp…over a 20-year timeframe", if they had a 15% allocation to a diversified unlisted infrastructure equity portfolio.

"Unlisted infrastructure has outperformed every asset class over 13 years", said IPIF's newest hire Kurt Lemke, head of research and portfolio construction, unveiling the research on 18 February (2020). IPIF's biggest client base is SMSFs, which have not historically had access to this asset class, compared to large superannuation schemes which often have allocations of up to 15%.

IPIF's research, led by Lemke, was modelled on data in an inquiry report from the Australian Government's Productivity Commission on superannuation schemes (published January 2019) and various zero-fee indexes, with all the research net of fees. The research involved running 100 20-year Monte-Carlo simulations looking at potential performance for an SMSF with 5-15% exposure to unlisted infrastructure equity, as opposed to the base case of nil exposure evidenced in the Productivity Commission report.

IPIF's research found 84-85% of the time SMSFs would have outperformed the base case at 5% to 15% allocations to the asset class, with an average annual 45bp outperformance at a 15% allocation for 20 years. At that 15% allocation, IPIF also found an average 1.4% reduction in risk per year for 20 years, in terms of lower standard deviation of annual returns.

For IPIF, the research vindicates its aim "to democratise the unlisted infrastructure investment asset class for Australia's 600,000 SMSFs…"

IPIF's open-ended fund of funds platform is called IPIF Core, which is in the middle of a fundraising round, due to wrap up this half of 2020.

Its investor base features SMSFs, accounting for 55%, high net worth individuals, family trusts, small corporate superannuation schemes, university endowments and small institutional investors. The minimum investment into IPIF Core is A$50,000, while the largest mandate to date is A$17 million.

IPIF Core

The IPIF Core platform stands at A$195 million in capital raised from a total of 438 investors, with A$193 million deployed into four funds.

The last fundraising round (its fourth) launched mid-2019 with a target to raise A$100 million. By the end of the year this round had raised A$75 million from investors.

The fund-of-funds manager has raised the target for this fundraising round to A$250 million, inclusive of the A$75 million, expecting to have a close by late Q1 or early Q2 2020.

Last year, with the new capital raised, IPIF Core added a fourth fund to the investment portfolio. The manager put approximately A$70 million into The Infrastructure Fund (TIF), managed by Macquarie Infrastructure and Real Assets (MIRA).

The funds are:

All these funds are open-ended, domestic Australian unlisted infrastructure equity funds. There is only a small universe of these types of funds numbering in the region of 10, though IPIF does not plan to invest in all of them.

The bigger allocations IPIF Core has made are to Utilities Trust of Australia (around A$84 million) and to The Infrastructure Fund (around A$70 million).

The IPIF Core platform, via the four funds, has exposure to 31 assets, with Australian airports the largest share at around 40%. According to Connolly, their approach to investment is bottom-up, starting with the analysis of the assets.

Future strategy

More immediately, the manager is looking at opportunities with the existing funds to deploy more capital, as well as being in talks regarding potential new funds in the Australian open-ended unlisted infrastructure universe.

Nicole Connolly, IPIF's founder and CEO, told IJGlobal: "We are looking at options to invest directly too, such as co-investments but also there are opportunities where minority investors want to exit assets and other shareholders do not see a value in buying these small stakes, which do not offer board seats for example."

IPIF's clients favour a perpetual investment model. But Connolly said some of their investors have said they are interested in global investments. Offshore unlisted infrastructure funds tend to have closed-ended structures, so IPIF is in discussions around possible ways to align the two goals.

Around 78% of the 31 asset portfolio is in Australia.

Meanwhile, chief investment officer Jonathan van Rooyen told IJGlobal: "We are looking a lot at interesting things we can do with yield." 

IPIF Core is forecasting 4.5-5% cash yield this financial year. Since inception IPIF Core has delivered an average return of 9.5%.

Overall fees are 1.77%, including fees and expenses. IPIF's own management fee as fund manager stands at 65bp.

Looking longer-term, IPIF's team would like to be able to serve retail investors which is the "end-game" in their aim to "democratise" the asset class of unlisted infrastructure.