British Columbia Investment Management is planning to increase its infrastructure assets under management by 60 percent by 2030, according to Lincoln Webb, the group’s global head of infrastructure and renewable resource investments.
The Canadian institution currently has C$28.1 billion ($20 billion; €18.9 billion) of AUM in its infrastructure and renewable resources programme, as at the end of March 2024, accounting for 12.3 percent of BCI’s total AUM. However, the manager of 29 British Columbian public sector clients is eyeing significant growth.
“[Our clients] are universally under-allocated to the space versus their long-term goals. On average, infrastructure represents 12 percent of our total assets at BCI and most of our clients are seeking to advance to a 15-25 percent allocation,” Webb told Infrastructure Investor. “When we think about that over the coming years, we expect the programme to go to C$45 billion by 2030, so that leaves significant investment runway. After we reach full allocation, we then of course will evaluate clients’ appetites to invest further in the space.”
BCI delivered a 7.9 percent return for the infrastructure and renewables programme for 2023-24, ending in March. That was slightly down on the 9.2 posted the previous year, although the portfolio is exhibiting an 8.5 percent five-year return and 9.2 percent over the last 10 years.
This, Webb says, reflects the core infrastructure make-up of the portfolio, including assets such as UK gas distribution system National Gas, US utility Puget Sound Energy and Australian rail and Chilean transmission company Transelec. It also has an 8.7 percent ownership in the beleaguered Thames Water, having invested in 2006, which BCI declined to comment on.
In contrast to several core-oriented infrastructure investors, Webb said that the group hasn’t suffered particular deployment struggles in the past 18 months.
“We try to be thoughtful about the future of the program – ensuring we are an active participant in the market. Especially right now, for example, where, although there are not necessarily bargains, it is still a very interesting market from a buyer’s perspective,” he maintained. “Whether it’s renewables, transportation or other sectors, the supply-demand balance appears relatively attractive.”
Webb added: “We’re finding when we are getting into auction processes, they’re less aggressive. It doesn’t mean they’re not competitive, but the number of serious bidders has come down to a more manageable level, something that we think is more reasonable. We have also found a lot more openness to dialogue – whether it’s with corporates or sellers of assets around more bespoke transactions or more creative structures that we just were not seeing two or three years ago.”
One example, according to Webb, was a deal announced in August in Japan whereby BCI joined forces with Macquarie Asset Management for a sale and leaseback of a portion of its mobile network assets, worth between $1 billion and $2 billion, with Rakuten to continue to manage the assets.
“We found a solution for Rakuten that allowed them to unlock capital to reinvest in other facets of their business and allowed us to invest in their network,” Webb explained. “That’s an example where we can have a deeper dialogue with a market player around meeting their needs and at the same time opening investment opportunities for ourselves.”
Strategic fit
Rakuten, of course, is not BCI’s only asset held alongside Macquarie. The aforementioned National Grid and Puget Sound Energy are also in the partnership, as well as Australian electricity network operator Endeavour Energy, France-based Reden Solar and battery storage platform Eku Energy.
“It’s not that our portfolio is all core assets, but the alignment around our interest in that area of the market has led to a historical relationship with Macquarie,” said Webb, while noting that the two have a relationship going back to when BCI first invested in the asset class in 2006.
“With Brookfield, we’ve collaborated on a number of successful investments in emerging markets,” he added.
The relationship with both GPs also extends to fund commitments, with BCI a serial investor in funds managed by the duo across geographies and risk profiles. While about 83 percent of BCI’s infrastructure investments are made directly, it reserves the remainder for fund commitments, which have also included GPs such as Actis, KKR and ArcLight.
“[Fund commitments] can provide access to markets where we don’t have a strong presence or sectors that we’re not as strong in and not seeing the full scope of opportunities we would like to. I would say the key theme, however, is the long-term strategic nature of these relationships, which have been helpful in allowing us to execute our global direct investment model,” Webb reasoned.
Somewhat unusually, about a quarter of BCI’s infrastructure portfolio is in emerging markets. It teamed up with Brookfield and GIC in September to acquire American Tower’s operations in India for about $2.2 billion, while also in India in 2023 invested $300 million into the I Squared Capital-backed toll road platform Cube Highways Trust.
“What allows us to do that is having a strong developed market, core foundation in the programme. In seeking higher returns with higher risk in emerging markets, we can build on and complement this more conservative core foundation,” says Webb.
“When we think about investing in markets such as Brazil, Colombia and India, we are very selective and spend quite a bit of time in these markets before we invest. We were just in the Philippines, for example, undertaking due diligence work as a future market for our program. Overall, we try our best to be very disciplined in identifying high quality companies and partners in these growth economies.”
New ground
In more developed markets, BCI opened its new office in London in June 2023, with a view to making more investments in the UK and Europe. Its first investment from the office was a €300 million commitment to the A2 motorway in Poland owned by Meridiam.
BCI has also expanded the programme in the last 18 to 24 months to include infrastructure debt investments, which have included loans to the data centre platform EdgeConnex and fibre company GlobalConnect, both owned by EQT Infrastructure and two sub-sectors not covered by its equity strategy to date.
“The market is very focused in the digital space as the need for capital is high. When we look at the opportunity set, we feel today there are very good opportunities further up the capital stack of these companies and assets,” Webb outlined. “We still look at equity investments in data centres, towers and fibre, but when we consider the growth that investors need to underwrite to and where valuations are today, we find the risk-return profile stronger in the debt rather than the equity.”
Spoken like a true core infrastructure investor.