Brookfield Infrastructure Partners LP is on the cusp of its second decade, and chief executive officer Sam Pollock is shoring up capital while preparing to welcome a new slate of index investors to mark the occasion.
As soon as next week, BIP will mark a long-awaited milestone when it becomes a fixture on the S&P/TSX composite index, after recent changes to the eligibility requirements. BIP has been seeking the recognition for years, craving not only a higher profile but also access to the fast-growing group of exchange-traded funds.
"It opens up the door to a whole host of investors," said Mr. Pollock, who is also responsible for the expansion of the infrastructure operating platform at parent organization Brookfield Asset Management Inc. BIP is also seen as a candidate to be added to the TSX 60.
It's been roughly a decade since Brookfield said that it would spin out its infrastructure assets and list them on the New York Stock Exchange. At the time, the country's largest pension funds were just beginning to build up a presence in the still-emerging asset class, but there was an expectation that retail investors, too, were hungry for investments that could offer a steady income – particularly given the evaporation of income trusts.
These days, the market looks a lot different.
"What it feels like is taking place is a greater recognition by governments … that they can't do some infrastructure themselves," Mr. Pollock said. "Governments, at least in the developed world – Canada, U.S. and Europe – haven't really taken advantage of the dollars out there. So they're waking up to it."
That's likely to lead to an increase in public-private partnerships and privatizations in the next 10 years, Mr. Pollock said. After that, he anticipates that the asset class will be considered mature, much like the real estate industry is now.
Countries such as Canada and the United States have expressed interest in attracting more institutional investors to building projects such as toll roads, power lines and water treatment facilities in recent months. A record amount of money is being amassed by global infrastructure firms, according to alternative asset data provider Preqin, with yield-hungry investors drawn to the lower volatility, long-term nature and steady returns of the utility-like assets.
Amid the competition, BIP's favoured approach is to pitch its own projects, rather than just shopping at auction. The company maintains that there are pockets of opportunity to be carved out in niche areas such as Indian telecommunications and parts of the energy sector.
Devin Dodge, analyst at BMO Nesbitt Burns, began covering the stock earlier this week and sees a lot of growth potential. He points to the S&P/TSX composite index inclusion, the stock's valuation and the potential for the company to grow not only through mergers and acquisitions, but also through organic growth.
BIP has a backlog of capital projects – investments needed to maintain or improve its assets – of $2.4-billion (U.S.) and could increase by as much as $2-billion more within 12 months. Mr. Pollock said that these investment are typically where the business earns its highest returns because "we're not competing to the same degree as we would an M&A opportunity where we have to go up against a number of pension plans."
To fuel future deals – and fund the expanding need for capital investments needed to grow businesses BIP already owns – the company launched a $1-billion equity offering Monday. The deal included selling units through a bought deal for $700-million in proceeds, and raising he rest from a private placement with parent organization Brookfield. BIP's stock is up 31 per cent in the past year, but slipped about 5 per cent Tuesday.
Still on Mr. Pollock's wish list are more assets in the company's Canadian home market, which would appeal to more local investors. Ideally, he'd like to keep 25 to 30 per cent of the company's business in North America but finding good value has been a challenge. "The challenge is finding good value," he said. "I would say it's not as deep an investment pool as other markets. In Europe you have water companies, you have lots of transportation companies, toll road companies, airport companies. Well, we don't have those here."
In the meantime, BIP has spent the last few years focused on building up its investment business in Asia, establishing offices in the region and learning from the Brookfield real estate investment team's deals in the region.
"Probably the biggest focus today is Asia – so we've been building teams for about the three-four years in India, Japan, South Korea and China," Mr. Pollock said. In five to 10 years, he anticipates that one-quarter of BIP's business will be in Asia.