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Building bridges

They do not come any more Australian than AMP Capital. Its parent company started life as a mutual insurer in Sydney in 1849, and is today headquartered in the city’s first skyscraper, which it financed, and which stands on the site of AMP co-founder and pastoralist Thomas Mort’s wool store. Its commanding views of the famous harbour are the backdrop to board and client meetings.

And yet, when IPE met AMP Capital’s CEO Stephen Dunne recently, its last board meeting had taken place in the Tokyo office it had opened in 2007, and in that meeting sat one board member from MUTB of the Mitsubishi UFJ Trust and Banking group – which has owned 15% of its equity since 2011. This Aussie stalwart is clearly very international in outlook, and from the late 1990s a lot of its energy has been spent establishing its business in Japan and China. Early success from other partnerships in Japan led to the tie-up with MUTB.

“That has enabled us to establish relationships relatively quickly, with one in six of the corporate pension plans in Japan,” says Dunne. “We were focused on delivering monthly-income products to retiree clients, including an Australian Bond fund. We have just celebrated the 10-year anniversary of these products.”

It helped that the investment needs of an ageing Japanese demographic were not a million miles away from what AMP Capital was providing for its domestic superannuation market, of which it boasts the biggest share, at 24% of assets. It was the development of that market through the late 1980s that led AMP to spin out its investment division as a separate company in 1994. Twenty years later, 35% of its assets and about half of its revenues come from third-party clients.

Dunne sees his firm’s push into China as a similarly natural progression.

“The recent reforms, and progress on enterprise annuities – China’s equivalent of our occupational pensions – will help the early formation of a pensions market, for which the demographics establish a very meaningful imperative,” he says. “The enterprise annuity system is not unlike our own three-pillar system, not least because we’ve had many a Chinese delegation up on our observation deck in Sydney asking us about how Australian provision has developed. Our experience should help us capture flows there.”

As in Japan, AMP Capital is not going it alone. Dunne emphasises the “crucial importance” of picking the right local partners – and patience. The firm arrived in China back in 1998, speaking with a number of potential partners before opening discussions with the €230bn giant, China Life in 2006. Only 10 years after arriving, in 2008, did they put in place a formal strategic partnership – and while they immediately started working together to make AMP Capital the first Australian company to get a QFII licence, there would still be a long wait before the real fruit of the partnership could grow.

“We were keen to set up an investment firm with China Life, but life companies were not allowed to own a retail fund management company,” says Dunne. “We took a long-term view that the regulations would change eventually, which happened in June 2013. In just six months we have put in place a company structure and recruited staff, and we launched our first product in January 2014.”

China Life AMP Asset Management Company’s Money Market Fund raised €1.45bn. That is a taste of the mutual fund opportunity in China, which already accounts for more than €500bn in assets and is expected by the Asset Management Association of China to double by 2017.

“The life insurance industry, as a whole, is looking into how they can develop the professionalism of their agents in the area of financial planning,” he says. “That’s quite exciting, given that China Life has over 700,000 life agents.”

China Life AMP’s first product launch reflects the domestic fixed-income focus of Chinese investors, but Dunne believes that, just as the life companies themselves have only recently been able to invest in equities, foreign assets and more illiquid opportunities, so will the enterprise annuity market evolve over the next five to 10 years. This would reflect a pattern of internationalisation that AMP Capital has already lived through and exploited with its domestic clients.

It is also where the predominately Asian focus of the expansion of its wholesale and retail business meets the predominately European and US focus of its growing institutional business – where it has pushed the 25 years of experience built up in more than 100 infrastructure deals since it helped finance the Sydney Harbour Tunnel in 1988. This capability developed out of its pre-existing property and fixed-income expertise as opportunities arose from fiscally-stressed Australian states, particularly Victoria.

“The appetite of our client base for these assets continued to grow, along with the growth of the pension system as a whole, so much so that, once the Australian states were able to fund some of this work themselves again, we had clients asking us where else in the world they could go,” he says. “Given the history of PPPs in the UK, we started to look there on behalf of our Australian institutional clients, which in turn led to relationships with local institutions looking to invest in their own infrastructure markets as well as those in Europe and Asia.”

UK investments have included a deal for Thames Water in 2006, the acquisition of 49% of Newcastle Airport in 2012 and, most recently, a consortium deal for a power transmission project connecting the Greater Gabbard Wind Farm, off the coast of Suffolk, to the onshore grid.

“I think the mood among governments about involving private capital in long-term investment projects has generally changed as they have recognised their fiscal challenges, and the amount of work that is required to bring their assets up to date and introduce new assets in areas like renewable energy,” says Dunne. “The investor demand is not for greenfield projects so much, but if governments do the greenfield work and then sell the asset to institutions, that frees capital to recycle into new projects. Through that process, AMP Capital has come to own 35 schools in Australia, for example.”

AMP Capital managed to raise US$500m (€366m) from 30 institutions for its first infrastructure debt fund during 2011-12, including its first UK pension fund clients, the East Riding of Yorkshire Council and Merseyside. Ireland’s National Pension Reserve fund committed €250m to the firm’s Irish infrastructure product. Summer 2013 saw the first close of its second infrastructure debt fund with US$300m from 17 institutions, stretching from Japan, Korea and Australia to the UK and Switzerland, buying assets worldwide.

The firm’s intention to expand its institutional relationships in Europe – and the range of products it sells – was signalled by its taking on former CIO of the West Midlands Pension Fund, Judy Saunders, as an adviser at the end of 2013.

“Turning up in Europe saying we’re really good at European equities was never going to be a sensible strategy,” says Dunne. “While Europe was initially about finding opportunities in infrastructure for our home clients, and became an opportunity to raise institutional assets for infrastructure investment, more recently a number of clients have invested with us in Australasian equities and fixed income, and we will be responding to demand with an Australian quantitative long/short strategy in 2014.”

With its two-pronged strategy for the retail investor in China and the institutional market in the rest of the world, AMP Capital is transcending its deep Australian roots to become one of the world’s truly global asset managers.

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