Australian investors prefer infrastructure assets
At a glance
It wouldn’t have been worth making the long journey to Australia to visit investors for most big listed businesses until relatively recently. Now, however, there are funds in Australia that don’t just meet their global equities obligations by investing in managed funds – an increasing number of fund managers in Australia also have a mandate to directly invest in offshore equities. There is particular appetite among Australian investors for infrastructure and commercial real estate assets. Local pension funds are also starting to develop in-house skills to be able to assess international investment opportunities.
So when should IR teams keen to grab a slice of this new business head to the country? It’s worth noting that it takes 24 hours to fly from London and 20 hours from New York, so it makes sense to add Australia to a trip through Asia, if possible.
As for timing, Cathy Kermond from Credit Suisse’s Australian equities corporate access team recommends avoiding the Australian company reporting seasons of February and August as well as school holidays, which usually fall in January, the first two weeks in April, two weeks in July, the last two weeks of September and the first week in October. ‘We can still organize roadshows during those times, but it’s not optimal,’ she says.
Justine Brant, head of corporate access at Deutsche Bank in Australia, says the international conference season in March and September are also times to avoid. ‘Australian investors do travel, though, so it’s not unreasonable to expect to see them at your head office as well.’
The financial services sector in Australia comprises the four large local banks – Commonwealth Bank, Westpac Banking Group, ANZ and National Australia Bank – as well as outposts of many of the large global banks and local boutique investment houses. Most of these run fund management businesses. The pension system is the defining feature of the Australian financial services sector, known there as the superannuation system, but it’s more commonly called ‘the super system’.
There are two types of superannuation funds in Australia. The first are pension funds run by fund management firms, whose products are typically heavily biased toward Australian equities.
Then there are not-for-profit industry funds. As their name suggests, these were typically set up by an industry sector; for instance, Uni Super was originally established to manage the pension funds of people working in the tertiary education sector. The biggest industry fund is AustralianSuper, an amalgamation of several industry funds. It’s one of the only industry funds in Australia that has a mandate to directly invest offshore, and it does so in property, infrastructure and equities. AustralianSuper invested more than A$2 bn ($1.5 bn) of members’ assets last year in property in the UK and the US.
Australian employers currently contribute 9.5 percent of their employees’ salaries into a complying pension fund, with the money locked away until retirement.
It’s a river of gold that flows into the Australian fund management sector each year: according to the Australian Bureau of Statistics, as at June 30, 2016, A$2.7 tn was invested in the Australian funds management sector, with A$74 bn flowing into the system the prior year.
It’s not known how much of this is invested directly in international equities, but it’s likely only a tiny amount – so don’t be too hasty booking a flight to Australia. Many local fund management businesses simply do not have the mandate to directly invest in global equities. If a portfolio does have a global equities component, often it’s allocated to global managed funds based offshore.
Additionally, many Australian fund management firms don’t have the research skills onshore to directly invest in businesses listed on foreign stock exchanges, although this is changing.
‘There are many more funds now than there were a couple of years ago that have a mandate to invest globally. There are also more pension funds taking on management of their own funds that are interested to see corporates coming in from overseas,’ says Kermond.
AMP Capital is one Australian fund manager with a global property fund. It targets middle-market property assets across the office, multi-family, industrial and retail spaces.
‘AMP Capital’s global property business has been investing in the US real estate market for more than 10 years and currently owns assets across the US,’ says AMP Capital fund manager Tim Fallet. ‘We are direct real estate investors and typically look to talk to local US market real estate operators and investors with deep local market knowledge and expertise.’
How to prepare
Australian investors’ expectations are the same as any others in terms of the information they need to make an investment decision. The determining factor in how best to prepare is the length of time between the trip to Australia and the most recent results presentation.
Andrew Maple-Brown, portfolio analyst and investment manager at boutique fund management business Maple- Brown Abbott, says he likes to meet with companies just after results season so he can talk openly about what’s happening in the business.
When structuring your trip, plan to spend one day each in Sydney and Melbourne. Kermond suggests planning for around six one-on-ones and one group meeting each day. ‘We recommend coming to Sydney the day before you plan to start your meetings,’ he says. ‘Then fly to Melbourne that evening, or vice versa.’
Do take into account the effect that jet lag will have when planning your trip; traveling business class will make a huge difference to your ability to perform when you arrive in Australia. Coming through Asia can help to smooth the transition between time zones, but be warned that if you come straight from the northern hemisphere, you’ll likely land at 6.00 am after a 24-hour flight.
Many Australian executives are used to going straight to work having arrived at dawn after a red-eye flight, but it’s not ideal. If you can arrive on Saturday morning it will give you the opportunity to get your body clock adjusted and check out the sights. After all, if you’re going to come all that way you might as well take a couple of days to look around.
Brant says it’s also important to be aware that every meeting will be different. ‘Some will say, Please tell me about your company. Others will be shareholders and already know the company well,’ he explains. ‘It’s best to always have a brief presentation available but the meetings will usually take on a Q&A style.’
Do your research
One boutique fund that invests offshore is Magellan Group. Like any fund management business, it pays to get a feel for what it invests in before knocking on the door. Head of research Nikki Thomas notes that Magellan doesn’t invest in the energy or materials sectors. ‘We also tend to avoid very capital-intensive industries or industries that are very challenged,’ she says. ‘Automobiles is an industry with large global companies that we don’t consider.’
Rather, Magellan is focused on companies with a competitive advantage and good return on capital. ‘We want companies to tell us about what’s happening in their industry that will favor them,’ Thomas continues. ‘We tend not to look at tiny companies – we’re looking at businesses with a market capitalization of $5 bn and above.’
If Thomas is seeing a company she knows well, she wants insights into management thinking and strategic thought processes. For businesses in which Magellan is a potential investor, she recommends not focusing too much on short-term results from the previous quarter that she can already get from the website. Rather, Thomas is looking for deep insights into a potential investment’s industry, how it fits relative to its competitors and what makes the business interesting. ‘Really add insight into the long-term factors that are important to us,’ she recommends.
One example of this is a meeting with eBay a number of years ago, where the focus was PayPal’s impact on the payments sector. ‘It evolved into a thoughtful interaction that was less about eBay preaching to us, and more about it engaging with us on the opportunities for the business we thought it could pursue,’ Thomas recalls. ‘We were able to add value on the other side [of that meeting] and not just be presented to.’
There is certainly potential for investor relations teams to explore opportunities to secure investment funds in Australia. Just be aware the appetite for direct global equities is constrained, but growing. Do your research and make sure you see funds that can actually invest in your business and be prepared to deal with the tyranny of distance when engaging with Australian investors. If you can handle that, there’s no reason why a trip to the antipodes should not be on the agenda.
Fun and games
Wine and dine
This article appeared in the winter 2016 issue of IR Magazine