Alberta’s pension fund manager has bought a 50-per-cent interest in a six-lane highway that runs through the heart of Santiago, Chile, joining a rush by big pension funds and other institutional investors to buy infrastructure assets.
The $850-million (U.S.) purchase by Alberta Investment Management Corp. could be followed by others. AIMCo, manager of $70-billion in Alberta’s public-sector pension plans and other provincial holdings, says it would like to acquire more such assets, provided they become available at attractive prices.
“Going forward, I think we’re going to buy more of this if it becomes available at the right rate. We don’t buy infrastructure just because it’s infrastructure. We buy it because the rate of return” is suitable, says Leo de Bever, AIMCo’s chief executive officer.
Infrastructure assets include such things as water and sewage works, roads, bridges, power plants and transmission grids.
The transaction, announced Wednesday, follows a flurry of interest by other big investors in toll roads, the current hot item in infrastructure investing.
The Canada Pension Plan Investment Board announced a deal in October for a 10-per-cent interest in Ontario’s Highway 407 for $894-million (Canadian), and earlier in the year made a $3.4-billion offer for Intoll Group, the Australian company that owns a 30-per-cent interest in the road. SNC Lavalin has also been interested in expanding its ownership of Highway 407, which skirts the northern boundary of Toronto, but pulled an initial public offering in October that would have been used to fund additional purchases.
Pension funds are eager to acquire infrastructure because assets such as roads are long-term investments that go nicely with their lengthy obligations to make payouts to pensioners. Buying physical assets that have the ability to increase prices such as tolls also offers protection against inflation, an attractive feature compared to government or corporate bonds.
AIMCo purchased its interest in the Chilean highway, known as Autopista Central, from Swedish construction company Skanska AB, which was a co-manager of the joint venture that built the project.
According to figures released by Skanska, its share of the construction costs were $250-million (U.S.). The project began in 2001 and was completed in 2007. It includes 60 kilometres of roadways, 12 overpasses and 1.2 km of tunnels. The concession to run the road expires in 2031.
Skanska issued a statement lauding the sale of the highway as the best deal it’s ever made. “This deal gives a very good result for Skanska and our shareholders. The investment in Autopista Central is Skanska’s most successful ever,” said Johan Karlstrom, Skanska’s president.
Although Skanska touted its high profits on the transaction, Mr. de Bever disputed suggestions that the Alberta fund overpaid.
He said that Skanska valued the asset at its costs, and not the higher value that was apparent once the road opened and analysts were able to calculate its income potential based on traffic flow. Another long-term benefit is that car ownership in Chile is rising and tolls can also rise due to inflation or roadway congestion charges.
Similar claims about overpaying were also levied against Highway 407, but that investment has risen sharply in value, he said.
He declined to offer specific figures on the expected returns, but said they compare well to inflation-indexed Government of Canada bonds, which currently yield about 1 per cent, and low-risk equities.
