LP interview: Cbus' Kristian Fok

Cbus is unique among Australian superannuation funds – and maybe among pension plans globally – in that it owns a property management company. As the largest manager of retirement savings for the country’s construction workers, it makes strategic sense: Cbus has industry expertise on its board to offer direction and then it invests back in construction, creating jobs for its members.

Most importantly, the A$3.5 billion ($2.6 billion) portfolio has performed well, generating a return of more than 20% per annum over the last five years. When Cbus launched a strategic review in 2016 intended to establish how its A$2 billion in annual net cash inflows could be deployed efficiently, the property management company stood out as a direct investment model worth following.

“Our growth and size, and the capacity to keep adding managers, particularly in the unlisted space, meant it would be hard to sustain our existing strategy. We needed to be able to create capacity in our own right,” explains Kristian Fok, CIO of Cbus. “Cbus Property has been an inspiration because it creates product. The commercial property portfolio, if we sold it as a block, would be a highly attractive asset. There were also some areas of Cbus Property that complemented our infrastructure strategy, in particular its development capabilities.”

What emerged from the review were three driving principles: take a whole portfolio approach, building capabilities across multiple segments and bringing them together; think long term; and focus on the real economy, so present deployments create opportunities for future deployment. With this broad thesis in place, Cbus considered how it accessed each asset class. 

“We looked at what we would need to do to build a capability, how it was differentiated from what others are doing, and whether it was worth the effort,” Fok says. 

Infrastructure first

The superannuation fund had A$40 billion in total investments as of June 2017, with 10.5% in real estate – of which Cbus Property accounts for about half – 10.1% in infrastructure, 5% in private equity, 3.2% in hedge funds, and 6.9% in alternative debt. Cbus Property has about 30 people on the payroll and efforts are now underway to recruit additional staff in areas such as infrastructure and debt where there is a desire to make direct investments.

Third-party managers are still part of the strategy, but the plan is to rely on them primarily for overseas exposure while handling more of the Australian opportunities in-house. In infrastructure, for example, Cbus works closely with IFM Investors – it is responsible for more than two-thirds of the A$4 billion infrastructure portfolio – but the next step is for the superannuation fund to be a part-owner of an asset and play a role in managing it.

Earlier this year, Cbus teamed up with the Dutch Infrastructure Fund (DIF) to acquire an 80.1% stake in a portfolio of wind and solar renewable generation assets known as Bright Energy Investments (BEI). Synergy, an electricity business controlled by the government of Western Australia, holds the remaining 19.9%. BEI plans to expand an existing 30-megawatt solar farm and build a new 180 MW wind power facility.

“You will see us doing a greater variety of transactions,” Fok says. “The infrastructure market is competitive, and pricing has become tighter in the last two years. Greenfield is quite expensive for a low equity allocation but building capability in that area is worthwhile. The transaction we did with DIF and Synergy was a nice combination because we bought seed assets plus an existing development platform.”

For renewables, Cbus wants to see a return that is comparable to other alternative assets, which means an IRR of 9-10% and more than that if development risk is involved. But it will pursue deals across the infrastructure space. Whereas previously the superannuation fund looked at large privatizations, either working through a fund or as a co-investor in a consortium, now mid-size transactions that might be less interesting to bigger managers are on the radar.

No more offshore

Private equity, meanwhile, is less of a priority. Cbus remains committed to Australian PE through ROC Equity Partners – which selects fund and sources co-investments with “some alignment in the fees around that” – and has expanded the mandate to include agriculture. It had A$1.99 billion invested in private equity as of June 2017, down from A$2.1 billion a year earlier. ROC was the only manager to see a year-on-year increase in its allocation, which rose from A$410.4 million to A$479.2 million.

The overall reduction in exposure to the asset class reflects a decision to cease allocations to international managers. Historically, investments were made through fund-of-funds, and while performance hasn’t necessarily been bad, Fok believes Cbus wasn’t getting compensated for the illiquidity premium – once costs are taken out and comparisons are made to the listed markets.

“Given the extent of change we have committed to around in-house investing I think we can get more bang for our buck by building up our infrastructure capabilities than trying to pursue private equity,” he says.

In this context, international private equity is a casualty of Cbus’ decision to focus on what it does well and do more of it directly. But there is also an awareness that now might not be the best time to ramp up exposure, given the way in which capital is flooding into the asset class globally and pushing up valuations in many market segments. 

“Throughout the 2000s, you could see the cycle – how much was being raised, how much was being deployed, how much leverage was required. You could see there was going to be a cyclical downturn,” Fok says. “Due to the global financial crisis and quantitative easing, the current cycle has been elongated, but I am starting to see the signs I can recall seeing a decade ago. Therefore, I am quite relaxed about allowing our portfolio to realize and not necessarily aggressively re-invest.” 

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Australasia
• LPs
• Real estate
• Infrastructure
• Australia
• ROC Partners