TMF Group's Catherine Caradus and Paul Adamiak zoom in on the benefits of Australia’s managed investment trust regime for foreign investors, and talk about helping global asset managers address operational challenges across jurisdictions.
Australia has been a key market for international infrastructure investors with continued privatisation and a robust PPP pipeline. How attractive will it continue to be?
Infrastructure has become more popular as an asset class over the past 15 years. Our group was established in the Netherlands in 1988 and became involved in servicing infrastructure investments in 2009. Today, we are supporting four of the world’s top 10 global infrastructure managers, which raise funds and make investments across the world. Australia is one of the most attractive destinations for infrastructure investments, thanks to its relatively stable political environment, a clear pipeline, as well as proximity to China and other Asian markets.
We have seen substantial growth in foreign investors’ interest in the country’s infrastructure market since 2008. In terms of numbers, we see investors from over 15 countries participating in transactions today, compared to around nine in 2008. The Australian government has been pushing for infrastructure development with dedicated advisory bodies like Infrastructure Australia and ambitious budget spending.
In light of many landmark privatisations in recent years – such as New South Wales’ Transgrid and Victoria’s Port of Melbourne – state governments continue to refresh their balance sheets and recycle assets in exchange for fresh funding for greenfield projects. A well-established PPP programme is also offering visibility on upcoming offerings from a wide range of infrastructure sectors. With further clarifications from the federal government last year to address foreign investments in assets with potential national security concerns, we believe Australia continues to be a ‘net capital importer’, as the country’s infrastructure is integrated with global capital.
Given the strong interest from foreign investors in Australian infrastructure, how do they participate in transactions in the market? And how do you help them?
Since 2008, Australia has benefitted from the favourable Managed Investment Trust (MIT) tax regime, which allows qualifying foreign investors to enjoy a reduced rate, withholding tax by 15 percent on fund distributions, compared to a normal level at 30 percent This is particularly important for big-ticket infrastructure asset owners.
MIT has become an absolute necessity for those who are interested in Australia’s infrastructure, real estate and agricultural assets. An additional advantage of having MIT is that foreign-based investors can cut costs, as setting up a corporate office on Australian soil is no longer necessary. Under a partnership with local service provider Evolution Trustees, we combine our global expertise with Evolution’s local knowledge to help investors take advantage of the MIT scheme through our end-to-end solution in the country.
How does your partnership with Evolution Trustees work?
As we work with Evolution Trustees, several key elements in the MIT requirements can be easily fulfilled. Those requirements include an Australian residency, substantial investment management activities within the country, corporation regulations test, licensing test and widely/not-closely held requirements. Moreover, a MIT cannot be a trading trust. The alliance has resulted in the establishment of several MIT vehicles for our mutual clients, including a new fund launched by an Australian specialist fund manager to provide high-net-worth Australians with access to high-quality infrastructure investments.
From Australia to the global markets, how has the outsourced delivery model changed as LPs and GPs increasingly create bespoke investment structures?
GPs often tell us that their operating models are different, their investment structures are complicated and their investor terms are increasingly bespoke. Platforms and other forms of co-investments are trending, while new assets and strategies are also changing the outsourced delivery model. This creates additional investment vehicles to be administered. It is clear that the GP operating model is evolving with the focus shifting from deal origination to asset management. For example, a manager explained to us that their platforms are asset-specific, targeting certain projects on more customised terms than a general fund to give LPs greater flexibility and reassurance of partnering with an experienced manager. That leads to more complexity, more reporting needs, more regulatory requirements and more applications of access-to-data technologies.
At the same time, we value the needs of smaller fund managers with lean teams that need to outsource administrative work. Therefore, our flexibility in financial and administrative support becomes essential to help relieve the rapidly increasing compliance burdens of various types of investors and managers.
With different regulatory regimes and operational requirements across the globe, what are the key pressures on an infrastructure investor’s back office?
Today’s clients are looking for a simple solution from a global service provider with vertical integration for their operations’ outsourcing, as they become increasingly global. Investors are more willing to do cross-border transactions than ever before and they are prepared to take more risks to go into other jurisdictions. Therefore, our strength in global reach and expertise on cross-border transactions is key. We operate as a single firm with more than 120 offices in over 80 countries, supported by 6,500+ employees.
For example, we have recently supported an Asian manager with European investors targeting Australian assets with the establishment and subsequent administration of a Luxembourg Reserved Alternative Investment Fund, a sub-fund Singapore holding structure, and an Australian MIT and subtrust. All the work is performed through our global platform, led by one designated relationship manager, ensuring enhanced efficiency while streamlining transparency.
Also, we have many clients operating from London or Singapore, who may simultaneously be bidding on several assets in various jurisdictions. We understand the time pressures for these clients to have their bids prepared, investment structure agreed on, and debt facilities in place in a tight timeline, and thus we help streamline the bid process by supporting the Know-Your-Customer process and ensuring the acquisition structure is incorporated in time.
Looking ahead, do you plan to introduce new products?
Taking Australia as an example, we are aware of potential regulatory changes as the Australian government continues to attract funds for infrastructure development. We keep an open mind for any future changes and development of new structures, such as the corporate collective investment vehicle. Although it is at a preliminary stage, the CCIV Corporate Director role is modelled on the UK’s open-ended investment company legislation, which could result in quite a dramatic change to the current collective investment vehicle environment.
We are familiar with the concepts behind the proposed CCIV Depositary role, as we already provide Depositary services in both the Netherlands and Luxembourg due to the AIFMD requirements that came into force in July 2014. We consistently review our service offerings and plan future products to keep in sync with investors’ needs.