The philosopher buying up the world's infrastructure assets – The Australian Financial Review

Paul Newfield believes a good investment starts with a good idea.
It is a logical way of thinking for a stockpicker who graduated with a degree in philosophy, and separates short-term noise and volatility from long-term purpose and prosperity.
“We talk about investing in ideas that matter,” Newfield, Morrison & Co’s head of Australia and New Zealand says.
“We start with the big problems society will have to solve in the next few decades and then see which businesses are well-positioned to meet that need, but also have barriers to entry, attractive market structures and long-term contracts. We try and buy those businesses and then reinvest in their growth.”
Morrison & Co’s Paul Newfield is happy to be a seller when he needs to.    
Morrison & Co is the investment manager behind Infratil, the $5.7 billion New Zealand-based infrastructure investment company. It also runs a number of strategies for institutional investors and sovereign wealth funds.
Many domestic infrastructure assets have been thrust into the spotlight by the spike in mergers and acquisitions activity concentrated heavily on long-duration assets.
“Certainly we’re seeing competition when we’re trying to bid for things,” Newfield says. “We’re also seeing a lot of interest in assets that we already owned, too, and that has caused us to sell some assets, including Tilt Renewables.
“We loved it, but it got to a point where we thought others would value it more highly than we did. So, we’re happy to be sellers when we need to.”
Despite the rush of buyers into the market, Newfield says of the $15 billion worth of transactions Morrison & Co has been a part of in the past 18 months, the split between buying and selling has been relatively even.
“There have been some businesses we would have loved to buy where we couldn’t get to the valuation others saw or vendors wanted, but certainly this last year has been the best year ever for us as a fund manager and the best year for Infratil.
“We’re just having to work harder to stay ahead of the pack at the moment.”
An important part of Morrison & Co’s approach is its control bias, with the business taking a majority slice of most assets it invests in.
“We’re not looking for set-and-forget infrastructure because we think it’s hard to justify your existence as a manager doing that."
In June, Morrison & Co flexed its muscles on the sale of Telstra’s 49 per cent stake in InfraCo Towers, which was won by a consortium of investors that include the Future Fund, SunSuper and the Commonwealth Superannuation Corporation. Morrison will act as manager.
It does hold some minority positions, however, many of which stem from Utilities Trust of Australia, which it took over managing in 2018.
Unlike many investment managers who were bred in the economic and business schools of major universities, Newfield graduated from The University of Auckland with a Master of Arts in philosophy, having spent his time studying Nietzsche’s philosophy of love.
“Obviously I was besieged with job offers,” he jokes.
After a stint at Boston Consulting Group, it was a chance meeting with New Zealand investment banker Lloyd Morrison, founder of Morrison & Co, that reset his career.
“He was a very big character in New Zealand business,” says Newfield. “I got introduced to him, literally had a coffee, talked about life, the universe and everything, and at the end he said: ‘You should think about coming to work with me. If you don’t, you’re a f–king idiot.’
“I ended up working for him shortly thereafter. He was a force of nature and hard to say no to.”
The timing could not have been worse, being 2008, in the midst of the global financial crisis. “It felt like everyone was dying around us,” he recalls. “Babcock & Brown blew up and Macquarie was in trouble, but we managed to perform well.”
While the performance of many of its private funds aren’t disclosed, Infratil’s has been a standout. In the year ended March 31, Infratil delivered a total shareholder return of 91.9 per cent, supported in part by its $2 billion worth of gross proceeds from the Tilt Renewables sale.
Morrison & Co has been a big beneficiary from the push towards renewable energy in the past 18 months. The investment managers were early to the theme, buying into renewable energy producers such as Trustpower in the 1990s.
“We look at decarbonisation and see it as a problem which is going to take decades to solve,” says Newfield. “If you actually lay down some options early, you get great renewables development teams, get your foot on some really good sites. One way or another, you’ll make money.”
Morrison & Co owns a 50 per cent stake in the $1 billion Macarthur Wind Farm in Victoria that it bought off AGL Energy in 2015 for $532 million. It has also invested in renewable power projects in the US through Longroad Energy.
A concurrent big theme for the investment manager is digital infrastructure and data centres.
“You can see this exponential growth in data storage and data transmission,” Newfield says. “We can also see that more and more of society will care about where their data is stored." That was how the manager ended up buying into CDC (Canberra Data Centres).
“It’s the most secure data centre in Australia, looks after the most secure government payloads, you can see there’s going to be more and more demand for that, and they’re really well-positioned to meet that demand.”
In healthcare, the area of diagnostic imaging is where Morrison & Co is most attracted to in the spirit of solving big problems, as every dollar spent “seems to save a lot of system wide dollars”.
Morrison & Co also owns stakes in a number of airports, including Wellington, Perth and Melbourne airports, predating Newfield’s time at the business.
“We’ve been big investors in airports since the 1990s and the generation before me spotted that trend of democratisation of travel, with low-cost carriers and growth of the Asian middle class.
“It’s still, I’d say, an area where we’ve got genuinely world-leading operating capability, which you’ve needed in the last 18 months.”
If there is a gap in the market, the manager is willing to break ground.
“We certainly don’t mind taking on development and risk,” Newfield says.
“When we entered the US market, we entered it by securing what we thought was the best renewable energy development team. Not only did they not have assets, they didn’t even have a project pipeline. Out of that we’ve built gigawatts of renewable energy and turned it into a very substantial business.”
Morrison & Co’s approach appears to be getting recognition, he argues.
“Certainly, there was a time when I think infrastructure investors treated development capability as something you took off the value of an asset,” he says.
“We saw with the sale of Tilt Renewables, the market has now put significant value on the fact that you have the development team in the development pipeline … we give them opportunities to deploy capital.”
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