Sovereign Wealth Fund Institute

NSW Treasurer – Mike Baird

Composition of the NSW Ports Consortium

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The press release states, “State Corporation “Bank for Foreign Economic Affairs” (Vnesheconombank), The Russian Direct Investment Fund (RDIF), China Investment Corporation (CIC) and The Russia-China Investment Fund (RCIF) have today signed a Memorandum of Understanding (MOU), which sets forth a number of principles to promote future cooperation on investments into infrastructure projects and projects in the Russian Far East Region.

Parties have set out three main investment themes that will provide the foundation for a range of future investments in the region. Investments will be focused on projects with growing demand for new infrastructure, logistics, as well as high value-added development and processing of natural resources, and leading manufacturing and services companies with strong credentials.

The signing ceremony took place in Moscow today in the presence of the Russian President Vladimir Putin and the President of the People’s Republic of China Xi Jinping.

Vladimir Dmitriev, chairman of Vnesheconombank, said: “Together with our partners in China we have been financing Russian-Chinese development projects in priority sectors of the economy. These are primarily technology, innovation and energy efficiency amongst others. Our partnership is an important step towards greater economic cooperation between Russia and China.”

Kirill Dmitriev, CEO, The Russian Direct Investment Fund (RDIF) commented: “This opportunity will help to further attract long-term investments into the Russian economy, and will concentrate on investment and development of Russia’s Far East, including the implementation of large-scale infrastructure projects.”

Gao Xiqing, Vice Chairman and President, China Investment Corporation (CIC) said: “This memorandum gives further impetus to the ongoing cooperation between CIC and its partners in Russia to jointly seek investment opportunities with attractive returns and win-win solution”.

Hu Bing, Co-CEO, The Russia-China Investment Fund (RCIF) commented: “Today’s memorandum marks another significant step for the Russia-China Investment Fund. The growing demand for infrastructure in the Russian Far East offers excellent opportunities to deliver on the objectives set out in the memorandum to promote economic development and to achieve strong risk-adjusted returns for our investors”.

State Corporation ‘Bank for Development and Foreign Economic Affairs (Vnesheconombank)’ was established in spring 2007 in accordance with the Russian Federal Law “On the Bank for Development” on the basis of Vnesheconombank USSR. The Bank’s activity is designed to remove economic growth infrastructure restrictions, modernize and boost non-raw materials economy, high-technology industries as well as to stimulate innovations and the export of high-tech products and implement projects in the special economic zones, projects in environment protection, provide support for small and medium-sized enterprises.”

Read more: Russian Direct Investment Fund Press Release

A sovereign wealth enterprise (SWE) of the Government of Singapore Investment Corporation Pte Ltd (GIC) is making a £100 million investment in Greenko Mauritius Ltd, a subsidiary of Greenko Group plc. The £100 million investment will turn into regular Greenko shares between 2015 and 2017. Greenko’s capital infusion will accelerate construction of the firm’s renewable power portfolio in India. Projects include utility scale wind farms and Himalayan run-of-river hydro projects. The GIC’s infrastructure portfolio targets minority equity stakes in power generation, transmission and distribution, water utilities, and also in transport assets such as airports, seaports and highways.

In a press release, Greenko’s chief executive officer, Anil Chalamalasetty stated, “This shows great confidence in Greenko’s business model and its opportunity in the Indian power market. GIC’s infrastructure investment capability will be a great addition to the platform.”

Arden Partners plc and Macquarie Capital Advisers (India) Pvt Ltd were advisers to Greenko for the transaction.

The board of trustees at the Alaska Permanent Fund Corporation (APFC) amended guidelines for investing in infrastructure. Listed infrastructure is now an allowable infrastructure investment which will increase liquidity in the infrastructure portfolio. The board also approved the co-investment process for infrastructure investments.

According to APFC’s press release, “Our internal staff has put together a detailed review process for analyzing infrastructure co-investment opportunities that ensures each investment will see a thorough review,” said Board Chair Bill Moran. “In fact, they already applied this process to a recent investment and declined it. It gives the Board confidence in our investments when the staff is willing to say no to one that is not quite right for the Fund.”

Currently all infrastructure investments are made through pooled funds. To date, the APFC board has made US$ 1.7 billion in commitments to infrastructure. As of December 31, 2012, APFC’s infrastructure holdings were valued at US$ 792 million.

Regulatory risk is a significant risk when investing in energy infrastructure. Policymakers can enact legislation, impacting the return on investment and increase liabilities. The Norwegian Ministry of Petroleum and Energy is proposing cutting tariffs to ship gas through its pipelines by 90%. This proposed reduction would apply to new contracts. Major areas of the Gassled system are booked for years. Cash flow implications will occur, especially in the long run.

It is nearly impossible to have proper due diligence in energy infrastructure when there will be future political change in regulatory or legislative regimes.

Public investors have spent billions buying stakes in Gassled over the past few years. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Peru’s Administradoras de Fondos de Pensiones (AFPs) are private pension fund managers. In 1991, the Peruvian Treasury was faced with financial difficulties. Essentially the state-run pension system had insufficient funds to meet its pension obligations. Peru’s AFP market was created in the summer of 1993 to co-exist with the government-owned pension system.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Japan’s aging population and low birth rate are mounting pressure on the pension system to generate higher returns. A Japanese government agency showed a survey that said by 2060, the population of Japan will fall by 30%, down to 90 million people. Historically, the GPIF has been one of the largest purchasers of Japanese government debt. Japan’s US$ 1.3 trillion Government Pension Investment Fund (GPIF) has chosen four companies to conduct feasibility studies on conceivable future investments in alternative assets. These assets include private equity, real estate, and infrastructure investments. The chairman of the GPIF, Takahiro Mitani has ruled out hedge funds as a possible asset class.

The GPIF is contemplating private equity style investment programs.

The solicitation went out in August 2012. These studies will be due by the end of March 2013. The feasibility study results will be presented to the Japanese public and to the members of fund’s investment committee for review in the future.

The firms selected are the following:

• Brightrust PE Japan Co., Ltd.
• Atsumi & Sakai, Japanese legal firm
• Capital Dynamics
• T&D Asset Management

Finance Minister Bahk Jae Wan

The meetings are planned to occur two times year to discuss prospective investment projects. If a project has merit, the government of South Korea will allocate funds from its global infrastructure fund to be invested alongside the Qatar Investment Authority.

On October 20, 2012, Samsung Engineering Co., Ltd, the biggest engineering firm in Korea was awarded the Yanbu refinery expansion project from Luberef (Saudi Aramco Lubricating Oil Refining Company). It was a US$ 871 million deal. Luberef is a joint venture between Saudi Aramco (owns 70%) and Jadwa Industrial Investment Company (owns 30%).

According to the press release, “EDP Renováveis S.A. (“EDPR”) has reached an agreement to sell 49% of the Class A shares in a portfolio of wind farm assets located in the United States to Borealis Infrastructure for US$230 million. The portfolio is comprised of four wind farms totaling 599 MW, all of which were installed between 2007 and 2008 and have long-term Power Purchase Agreements (PPAs) in place. EDPR will continue to own the remaining 51% of the Class A shares in the portfolio.

Borealis Infrastructure invests in and manages infrastructure investments on behalf of the Ontario Municipal Employees Retirement System (“OMERS”), one of Canada’s largest pension funds. Its large-scale assets in the energy sector include the recent acquisition of Michigan-based Midland Cogeneration Venture (“MCV”), the largest natural gas fired, combined cycle cogeneration plant in the United States.

“Our investment in this portfolio marks a significant commitment by Borealis to the renewables sector, and is the type of large-scale infrastructure asset we look for to generate stable and consistent returns for the pension plan. We look forward to working with the proven management team at EDPR, and see this transaction as the beginning of a long-term partnership,” said Michael Rolland, President and CEO of Borealis.

EDPR is the world’s third largest wind energy company. Through this transaction, EDPR is commencing the execution of its asset rotation strategy, which it announced as one of its core objectives earlier this year. This strategy involves selling minority stakes in mature projects that are operationally optimised and with a low risk profile. This will enable EDPR to crystallise the value of its projects’ future cash-flow streams and re-invest in the development of quality and value-accretive projects, while contributing to its self-funding growth objective.

“We are pleased to have gained a partner such as Borealis,” said Joao Manso Neto, EDPR Chief Executive Officer. “This partnership is a step toward securing a positive future for both EDPR and Borealis. We look forward to the continuation of this relationship as EDPR continues to grow.”

Barclays acted as financial advisor for Borealis, and Shearman & Sterling acted as legal advisor.

The transaction is subject to the customary regulatory approvals by the Federal Energy Regulatory Commission (“FERC”) and the Committee on Foreign Investment in the United States (“CFIUS”).”

Read more: OMERS Press Release

According to the press release, “Ferrovial has announced the sale of 5.72% of Heathrow Airport Holdings Ltd, previously known as BAA Ltd., to Stable Investment Corporation, a wholly owned subsidiary of CIC International Co., Ltd, for GBP 257.4 million. Ferrovial continues to be the industrial partner in Heathrow Airport Holdings Ltd.

Ferrovial, currently the indirect owner of 49.99% of Heathrow Airport Holdings Ltd., previously known as BAA Ltd., has reached an agreement to sell 5.72% of FGP Topco Ltd., the holding company which owns Heathrow Airport Holdings Ltd., to Stable Investment Corporation (“Stable”), a wholly owned subsidiary of CIC International Co., Ltd, for GBP 257.4 million pounds, equivalent to EUR 319.3 million.

As part of the same transaction and at the same price per share, Stable has acquired shares from other shareholders of FGP Topco Ltd. for GBP 192.6 million pound sterling, equivalent to EUR 238.9 million euro. Upon completion of this transaction, Stable will own 10% of Heathrow Airport Holdings Ltd.

Ferrovial’s indirect stake in Heathrow Airport Holdings Ltd. will reduce to be 39.37% as a result of the transaction announced on 17 August 2012 to Qatar Holdings, which is subject to European competition approval and expected to close prior to the end of 2012. Ferrovial’s indirect stake will further reduce to 33.65% as a result of this transaction. The transaction with Stable is unconditional and closes today 31 October 2012. Following closing today, Ferrovial owns 44.27% of Heathrow Airport Holdings Ltd.

Stable will join the boards of FGP Topco Ltd. and Heathrow Airport Holdings Ltd. Britannia Airport Partners LP, GIC and Alinda continue as shareholders of FGP Topco Ltd.

“This sale of a stake in Heathrow Airport Holdings Ltd. is a further part of Ferrovial’s investment diversification strategy. Following this deal, we reiterate our role in Heathrow Airport Holdings Ltd. as the industrial partner. As previously stated, we will continue to work with the new shareholders and with existing shareholders to ensure that Heathrow Airport Holdings Ltd. retains its position as one of the best infrastructure assets in the world,” said Íñigo Meirás, CEO.

The transaction brings further enhancement to Ferrovial’s liquidity position and financial flexibility.

A consortium including Ferrovial acquired BAA Ltd., now renamed as Heathrow Airport Holdings Ltd., in June 2006. Heathrow Airport Holdings Ltd. owns Heathrow and Stansted airports (both in London), Glasgow and Aberdeen airports (in Scotland) and Southampton airport (in southern England). In the first six months of 2012, those airports handled 47.4 million passengers.”

Read more: Ferrovial Press Release

According to the press release, “EQT Infrastructure and Fortistar have signed a definitive agreement to sell Midland Cogeneration Venture (“MCV”) to Toronto-based Borealis Infrastructure (“Borealis”). Borealis invests in and manages infrastructure assets on behalf of OMERS; one of Canada’s largest pension funds.

EQT Infrastructure and Fortistar acquired 70% and 30% respectively in MCV in May of 2009. A strategy to improve efficiency, reliability and capacity of the plant has been successfully executed through the implementation of an extensive operational improvement program. MCV has also begun development and permitting work for a 640 megawatt expansion of the facility, which would enable it to expand its electricity and steam service to existing customers and potentially provide these services to additional customers. Sales (net of fuel and purchased power) and EBITDA have as a result of the implemented measures increased by 27% and 49% respectively from 2009 to 2012.

“MCV has enhanced its ability to provide reliable electricity and steam to its customers and the local community for many years to come. The focused operational improvement strategy has substantially exceeded the original expectations which we attribute to the extraordinary commitment of the MCV employees to implement this strategy. EQT Infrastructure and Fortistar are divesting a company which is more reliable, more energy efficient and better positioned for its future than when it was acquired”, says Glen Matsumoto, Partner at EQT Partners, Inc., Investment Advisor to EQT Infrastructure.

“During the ownership by EQT Infrastructure and Fortistar, MCV has been through a transformation that only few could have imagined back in May 2009. I am very proud that the operational performance of the plant has increased significantly while employee safety has further improved. The employees of MCV are excited about continuing their commitment to operational excellence under the ownership of Borealis”, says Roger Kelley, CEO of MCV.

Mark Comora, President of Fortistar, said “We are pleased to have had the opportunity of working with EQT Infrastructure and the MCV management team for the past three years. It is a testament of what can be achieved when everyone works together towards one common goal – to provide cost effective, reliable and environmentally sensitive power for Michigan.”

“MCV is an excellent facility with a strong management team, and it is exactly the type of large-scale infrastructure asset we look for to help us generate consistent, long-term returns,” said Michael Rolland, Borealis President and CEO. “Our teams in both Toronto and New York look forward to working with the MCV management team and building on the success that they have been able to achieve over the past few years.”

The transaction is expected to close by year-end and is subject to receipt of regulatory approvals and satisfaction of customary closing conditions.”

Read more: EQT Infrastructure

According to the press release, “The California State Teachers’ Retirement System (CalSTRS) today announced the expansion of its infrastructure program that includes a $42.8 million commitment to four California investments. Two of the investments are construction projects.

The California investments are:

• The construction of a portion of the Presidio Parkway transportation project in San Francisco.
• The reconstruction of the Long Beach courthouse in Los Angeles County.
• The operation of the gas-fired Crockett power plant near Oakland.
• The operation of the solar-electric Sun-Edison plant in the Sacramento area.

“These investments reflect CalSTRS’ commitment to the California economy and our willingness to contribute to it in a way that helps our state and offers the fund long-term, steady cash flows. The construction projects, in particular, will put more than 600 Californians to work,” said Chairman of the CalSTRS Investment Committee Harry Keiley. “We will continue to actively seek out greater investment opportunities in California infrastructure that meet our program objectives.”

The CalSTRS approach is to invest in long-term assets that hedge inflation and generate steady cash flows from high operating margins. CalSTRS is investing in funds initially, but eventually seeks to become involved more with co-investments and direct investments.

“California has a vibrant bond market that serves as an excellent vehicle for infrastructure investment,” Keiley added. “We’re looking for those opportunities that require capital beyond municipal bond debt. We believe they’re out there and we intend to invest in them to the benefit of our state and our members.”

The CalSTRS Investment Committee established the infrastructure portfolio in 2010. As of today, CalSTRS has committed $750 million to infrastructure assets. The most recent commitment is $100 million to the Meridiam Infrastructure North America Fund II, which closed in July 2012. In late 2011, CalSTRS partnered with Industry Funds Management on a two-part, $500 million global funds commitment. CalSTRS’ first infrastructure commitment was $150 million to the First Reserve Energy Infrastructure Fund in April 2011.”

Read more: CalSTRS Press Release

Japan’s mounting aging population without sufficient worker replacement is burdening their economy. According to a Japanese government agency at current assumptions by 2060, Japan’s population will fall 30% to 90 million.

Since inception, Japan’s Government Pension Investment Fund (GPIF) has generally been a conservative investor. Bonds and stocks make up the majority of their portfolio. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Khazanah Nasional Berhad created a special purpose vehicle (SPV) together with a subsidiary of India’s Infrastructure Development Finance Company (IDFC). The SPV will have RM 478 million in equity capital.

The SPV will assist in financing India’s national highway construction projects.

In 2011, Khazanah Nasional and the Infrastructure Development Finance Company created a joint venture to fund an infrastructure development company honing on India’s roads. Khazanah held an 80.1% stake in that venture. The first investment in their joint venture was in Jetpur Somnath Tollways Limited.

Source: Government Filings, 6/30/2012

According to the press release, “NextEra Energy Canada, Enbridge and Borealis Infrastructure announced today that they have filed for regulatory approval to allow Enbridge and Borealis to acquire interests in NextEra Energy Canada’s subsidiary, Upper Canada Transmission, Inc. Upper Canada Transmission, Inc. intends to bid for the opportunity to develop a new transmission line in Northern Ontario between Wawa and Thunder Bay as a joint venture through a limited partnership among affiliates of NextEra Energy Canada, Enbridge and Borealis. The venture plans to operate under the name NextBridge Infrastructure.

The proposed Ontario East-West Transmission Tie is expected to increase reliability, allow for the retirement or conversion of northern coal facilities and increase the ability to develop renewable generation in the region. If selected, the consortium expects to develop, construct, own and operate the new line under the regulatory oversight of the Ontario Energy Board. The expected in-service date is as early as 2017.

An Ontario Power Authority report has identified the project as a 400km, 230kV transmission line with an estimated investment of $600 million. The report states that the cost of the project is expected to be outweighed by the savings to the ratepayers of Ontario through lower congestion resulting in decreased generation costs, lower losses and increased reliability.”

Read more: Enbridge Press Release

Chinese President Hu Jintao pushed the theme of increased Asian infrastructure to stir up demand at the recent Asia Pacific Economic Cooperation (APEC) summit held this year in Vladivostok, Russia. The National Development and Reform Commission (NDRC), China’s economic planning entity approved 60 infrastructure projects costing around US$ 157 billion.

China is preparing to grow infrastructure development, push urbanization, and further develop social services in the country.

These measures are being produced to try to counteract slower projected GDP growth. This approval is a much smaller Chinese stimulus, then the stimulus package of 2008-09. The NDRC approved 25 rail projects in urban areas. Many of the large Chinese cities plan to have subway systems by the end of the decade.

At APEC, the major issues that were discussed include: trade and investment liberalization, regional economic integration, strengthening food security and establishing reliable supply chains.

The China Investment Corporation’s Jin Liqun told reporters on the sidelines of an international sovereign wealth fund forum in Mexico City, “the government is intentionally bringing down the growth rate, from 8% to 7.5% as a target, and I think we can achieve 7.5% for 2012.”

He further added, “the government is not taking this cavalierly, the government is doing a lot of things to help sustain the growth of the economy. In my view if the economy can grow at above 7%, it’s fine.”

According to the press release, “The Future Fund Board of Guardians confirms that it has entered into a Memorandum of Understanding (MOU) with the Australian Infrastructure Fund (AIX) to acquire all of AIX’s portfolio assets as part of an agreed transaction.

David Neal, Chief Investment Officer at the Future Fund said: “Australian infrastructure assets are attractive to the Future Fund because of their strong correlation with Australian economic growth, inflation protection and relative high levels of earnings certainty. These characteristics provide a strong fit with the Fund’s mandate to achieve high, risk adjusted returns over the long term.

“Over the last five years, the Fund has been building its Tangible Assets program. The infrastructure program is part of that and is now valued at over $4.3 billion or 5.6% of the portfolio. We continue to seek opportunities to increase our exposure to quality Australian and international infrastructure assets.”

The proposal is consistent with the Future Fund’s long stated strategy, and will further enhance the Fund’s direct exposure to quality domestic infrastructure assets. The Future Fund already directly holds 16.8% of Australia Pacific Airports Corporation. The Future Fund has given careful consideration to its proposal. The MOU provides exclusivity and sets out the process to close the transaction, including the requirement for a period of confirmatory due diligence and final approval by the Future Fund Board of Guardians.

The proposal to acquire AIX’s assets for $2 billion represents a 10% premium to the AIX Directors’ published valuation of its assets as at 30 June 2012 and provides AIX securityholders with certainty of value.

Any transaction would require the support of the Board of Directors of Australian Infrastructure Fund Limited and the sub-committee of independent directors of Hastings Funds Management Limited, as well as the approval of AIX securityholders.”

Read more: Press Release

Qatar Holding LLC, the sovereign wealth enterprise of the Qatar Investment Authority (QIA), is purchasing a 20% indirect stake in Heathrow owner BAA Ltd. The Qatar sovereign fund has been a major institutional investor in the United Kingdom and believes the British economy holds great long-term prospects. Qatar Holding is buying 10.62% of the stake from Spanish conglomerate, Ferrovial, S.A. for £478 million. The other 9.38% is coming from two other shareholders, Britannia Airport Partners LP (5.63%) and GIC Special Investments (3.75%). Britannia Airport Partners LP is controlled by Canada’s Caisse de dépôt et placement du Québec.

The total value of the deal was £900 million. The deal is pending regulatory approval.

Ferrovial is the indirect owner of 49.99% of BAA Ltd. The holding company which owns BAA Limited is FGP Topco Ltd. Some owners in FGP Topco Ltd include Ferrovial, Caisse de dépôt et placement du Québec, and GIC Special Investments. After this transaction, Ferrovial will have a 39.37% indirect stake in BAA.

“The sale of this stake in BAA is part of Ferrovial’s strategy of establishing a market valuation of our assets and improving the structure of our investment portfolio,” Ferrovial CEO Inigo Meiras said in a statement.

Ferrovial is selling the stake to finance its agenda to invest more into Latin America. Ferrovial is bidding for airports in Puerto Rico and Brazil. In 2006, the firm bought BAA for £10.3 billion using a significant amount of leverage.

In late July 2012, India experienced the worst power outage in their history. More than 680 million people, more people than the United States, Mexico, and Canada combined were without electricity. India had a second outage. Factories, offices, and other buildings at the time either switched to backup generators or closed temporarily. Backup generators in India are common for many large-scale businesses. India is Asia’s third largest economy, the economic workshop for outsourcing and technology services. Indian businesses cite that electricity supply is a key impediment to economic growth.

The manifestation of the power outage was a failure of power grids. The extreme heat during the summer of 2012 caused record levels of heat in New Delhi. Along with other factors, it was a perfect storm for an outage. Power Grid Corp. of India Ltd., is the state managed company that operates five regional grids. It runs more than 100,000 kilometers of electricity transmission lines.

India mostly relies on coal as their primary energy source.

Sovereign wealth funds like Singapore’s Temasek Holdings are keen on India’s infrastructure sector despite bureaucratic hurdles. They see the sector as promising. [Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

Nigeria’s sovereign wealth funds have been a contentious political issue for the country. The direction of natural resource revenue has pitted the Nigerian Governors Forum against the Nigerian federal government. Nigeria is sub-Saharan Africa’s largest crude oil exporter. The one billion dollar authority plans to start operations in the coming months. The Nigerian Sovereign Investment Authority (NISA) is still recruiting the fund’s management team.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]