27
may
2014
infrastructure
investor
SPECIAL FEATURE
This relates to uncertainty over
whether Borealis’ partners will always play
ball: a top-ranked investment banker says
that, to his knowledge, the firm’s Japa-
nese co-investors did not take part in the
Severn Trent bid.
But perhaps such critics misread
GSIA’s strategy. It may be that, either by
design or necessity, the vehicle’s LPs will
most often work on a different timing to
that of Borealis: OMERS would buy the
asset first and, having agreed to terms
and conditions, syndicate the equity to
its GSIA partners. This would still enable
Borealis to target bigger assets while allow-
ing for speedy execution.
The Fresno memo suggests that this
sequence, already used for theMCV deal,
will indeed likely be repeated. In a section
discussing GSIA’s pipeline, the document
says that Net4Gas, a Czech gas pipeline
operator bought by Borealis in March
2013, will probably be the platform’s
second asset. Since the company was
already in OMERS’ hands in November,
one could infer that the asset was being
offered to the Alliance when the report
came out.
Should this type of process prove
workable, an interesting question would
still arise: does a pension fund like
OMERS have the necessary resources
to effectively act as a fiduciary for third-
party LPs?
The Fresnomemo hints that the firm
is bolstering its ranks and geographic
spread, with plans to open a Sydney office
in the near future. But others are not sure
this will absorb the extra workload.
“It’s a very practical issue. The Japa-
nese investors and trading houses are very
used to having teams on board, a lot of
research and a lot of centralised exper-
tise,” says the banking executive.
JAPANESE BULLS AND AMERICAN
BEARS
Sceptics point out that past attempts at
grouping together large pensions have
tended to fail.
An industry veteran recalls that an
alliance between some of the US’ largest
pension funds – comprising CalPERS,
CalSTRS and a number of New Jersey
and New York schemes – fell apart
some years ago, largely on philosophi-
cal grounds.
“Pensions have different areas of geo-
graphical expertise, different appetite for
one industry or another. Some care about
labour a lot and others don’t. Those alli-
ances are very difficult to put together in
a way that you get scale and very aligned
interests – because people end up having
different interests.”
Yet this perhaps misses a point about
GSIA’s
raison d’être
. Rather than an alli-
ance between equals, the vehicle is seem-
ingly designed to have Borealis firmly at
the helm – and its deep-pocketed part-
ners, largely new to the infrastructure
asset class, happy to let themselves be
guided. At least for now.
“We don’t have the expertise they have
so our ability to vet investment opportu-
nities is limited,” says an executive at a
participating scheme.
“But we are comfortable with the
opportunity set we get in return for
giving up a bit of the decision-making.
And hopefully by getting to work with
OMERS’ folks and learning more about
infrastructure investing we can come
up to speed – so that, if we ever need
to ask for additional transparency and
due diligence, we would be comfortable
getting that.”
And this is why, for the industry, the
eventual fortune of GSIA probably mat-
ters a great deal.
It’s not somuch that its model could
be easily replicated elsewhere – few LPs
show as much enthusiasm for partnering
with fellow pensions as do the vehicle’s
current LPs, most insiders seem to concur.
Should GSIA turn out to be a success,
however, other Japanese LPs could be
tempted to follow suit and start invest-
ing in infrastructure.
Given that Japan’s pensions, by
some accounts, currently manage close
to $3.2 trillion of assets, it may not be
a bad idea to be among the first to
befriend them.
n
“We’ve yet to see an
announcement of a deal
which they’ve sourced
using their network and
where there’s very low
competition”
Severn Trent
: bid dropped
