In Sydney’s central business district, a couple of streets south of the Opera House and the Harbour Bridge, is Quay Quarter, a gleaming new office tower that opened in 2022 as a redevelopment of the existing AMP Centre.
It’s the new home of, among others, Dexus, the real estate investment firm listed on the Australian Securities Exchange. The firm is moving in following its acquisition of the domestic infrastructure equity business of funds manager AMP Capital.
While the name of previous parent company AMP still adorns the outside of the building as a reminder of the its past, an open-plan client space with panoramic views of Sydney Harbour feels like a good place to begin looking forwards.
The firm welcomed Infrastructure Investor into this space in June to meet with co-heads of infrastructure Michael Bessell and Michael Cummings. On the table was the team’s status under new ownership, its plans for the future, and what opportunities could arise now it is part of a dedicated real assets investment house.
The AMP saga
Infrastructure Investor is sitting down with the two Michaels shortly after Dexus reached a first completion in its deal to acquire AMP Capital’s Australian real estate and infrastructure equity business (at time of publication, a final completion is still pending the transfer to AMP of the stake in China Life AMP Asset Management that Dexus has acquired under the transaction, expected to be resolved in due course).
While the two share responsibility for the infrastructure business, they have slightly different remits: Bessell focuses particularly on origination, separately managed accounts and the firm’s PPP investments, while Cummings leads on asset management and commingled funds.
The acquisition by Dexus followed a period of uncertainty for AMP Capital that began with the negative headlines affecting parent company AMP Ltd after the 2019 final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. There was further controversy surrounding the appointment of London-based Boe Pahari as AMP Capital’s CEO in June 2020.
Pahari’s appointment swiftly unravelled, impacting the AMP Capital business despite the underlying performance of its Australian fund assets holding up well throughout the ensuing covid-19 pandemic.
AMP Ltd attempted to spin out its high-performing AMP Capital business, with the intention to rebrand it as Collimate Capital. It pursued a demerger and a separate stock market listing to create value for shareholders. But it became apparent that a range of buyers were keen to cherry-pick different parts of the business.
Ares Management bought the infrastructure debt division for A$428 million in February 2022, after separate attempts to acquire the whole of AMP Ltd and take a 60 percent stake in AMP Capital, before the demerger plans were announced. Then, US-headquartered asset manager DigitalBridge bought AMP Capital’s international infrastructure equity business, with Dexus taking ownership of the domestic real estate and infrastructure operation.
It’s been one of the longer-running sagas in Australian corporate circles over the last few years, so it must be something of a relief to see the back of it?
“It’s really exciting to be part of an organisation that really wanted this business,” Bessell says. “That’s a real refreshing change – we’ve gone to an organisation that’s got ambitions to grow and diversify its product mix and businesses. [Dexus has] always been just a real estate business and now it wants to be a real assets business, and [it comes from] the top down.
“People like [Dexus CEO] Darren Steinberg and [CIO] Ross Du Vernet worked at Colonial First State [now First Sentier Investors], and they had both real estate and infrastructure [funds]. So they’re knowledgeable and are keen to grow [infrastructure].
“It’s great to be part of an organisation where that’s a real focus and we can look forward, rather than looking over our shoulder.”
On the same theme, Cummings says that being part of Dexus has provided a chance to work under a leadership team with a narrower focus, better-suited to fostering growth and ensuring positive returns for investors.
“[AMP had] multiple products – and you tend to find management distracted to areas of the business that are underperforming rather than performing strongly, and I think that was definitely the case coming out of the Royal Commission in particular,” he says.
“It’s been a relief from the point of view that we can now finally put all the distractions in the past, and get the team focused on growth and delivering for investors.”
Cultural fit
Where will that growth come from? The team sees an opportunity in real assets as an overarching theme, encompassing both real estate and infrastructure, with the chance to share knowledge and leverage synergies between the two business units.
Before discussing that, though, Cummings says it was a “sensible evolution” for Dexus to expand its client offering into infrastructure, as well as adding further real estate funds to its portfolio, through the AMP Capital acquisition.
He says he and Bessell felt their team would find a good cultural fit at Dexus, having been in discussions over the acquisition for well over a year before it closed.
“We knew that Dexus had a very strong reputation in the market for governance and performance, and for having in-depth knowledge of the areas in which it plays, and we saw that as good alignment,” says Cummings. “And in terms of ambition and capability, Dexus has been on a growth path […] which we saw as very attractive and a good fit for our business.”
Dexus has its roots in Deutsche Bank, effectively spinning out of the bank in 2004 when it acquired 50 percent of the management rights to several property trusts before rebranding as Dexus and securing the remaining management rights from DB in 2008. Since then, it has continued to grow both organically and through M&A.
“They’d been sniffing around AMP Capital, like a lot of managers had been, for a while,” Bessell says. “For us, this bolsters our capability across retail and wholesale fundraising, as well as the institutional market. Bringing that all together in a single-purpose real assets business has been quite powerful.”
On the topic of culture, Bessell reflects on how his team was previously part of a “multi-faceted manager” that also invested in fixed-interest assets and listed equities, arguing that investment teams in the real assets space have a different mindset to their counterparts in other asset classes. “Now we’re working in a house that’s just doing [real assets],” he says, implying the benefits of a narrower focus.
The firm’s LPs appear to have responded well so far. Dexus has a strong reputation within the Australian market, including in the institutional sector, and many investors are happy to work with a manager that operates on both sides of the real assets divide.
“We’re seeing increasingly that a lot of investors are managing infrastructure and real estate out of the same unlisted bucket,” says Bessell. “For a lot of our clients, there’s a single person at the top in charge of [both] – so it’s been really beneficial to bring those relationships together.”
Real assets, together
This is an important part of the rationale behind Dexus’s desire to expand into infrastructure: the ability to realise synergies between the two asset classes.
This was in evidence in May, when the Dexus Community Infrastructure Fund, the Dexus Healthcare Property Fund and the AMP Capital Core Infrastructure Fund combined to acquire a 30.58 percent stake in Celsus Holding, the consortium that manages and maintains the Royal Adelaide Hospital under a public-private partnership. The deal took the total stake in Celsus held by Dexus funds to 72.79 percent and was held up by the firm as an example of how the two halves of the business can combine effectively on deals.
Going further, Bessell outlines an example of a potential investment in a broader health precinct, where a hospital owned by Dexus’s infrastructure funds might see value uplift created by Dexus’s real estate vehicles investing in residential or commercial property adjacent to the site that can enhance its operations. Not only could it increase the value of assets, but it provides an opportunity for clients to invest in both parts of a project with different risk-return profiles.
Cummings says: “The ability to look at large precincts from [both a real estate] and infrastructure point of view – if you think about it today, the amount of touch points that individuals have with Dexus-controlled assets, such as arriving at Melbourne Airport, or getting on a train owned by Reliance Rail in Sydney, to get to their office or go to the shops – the breadth of that opportunity is very large.”
When it comes to offshore investors, both Dexus and what was then AMP Capital had LPs from outside Australia, particularly Asia, which can now be strengthened with the teams combining platforms and all the cross-selling opportunities that brings. To capitalise on this, the firm has just opened a new office in Singapore.
The firm’s broad strategy in infrastructure is one thing that isn’t changing under the new Dexus ownership, with a continuing focus on four main sectors.
These four sectors are: transport, with investments including Melbourne Airport, London Luton Airport, Port Hedland International Airport and Reliance Rail; energy transition, with investments in PowerCo New Zealand, Macarthur Wind Farm and Endeavour Energy; social infrastructure, where assets include Optus Stadium in Perth, NSW Schools, and student accommodation at the University of Melbourne and the Australian National University in Canberra; and health, including investments in the Royal Adelaide Hospital, Victorian Comprehensive Cancer Centre, and Opal Aged Care.
The firm’s funds are generally open-end and the team has been out on the fundraising trail recently to secure capital that will fund new investments. As well as the aforementioned Community Infrastructure Fund and Core Infrastructure Fund, it also manages the Dexus Diversified Infrastructure Trust, among other vehicles and SMAs.
Cummings says that, globally, fundraising was “very good” over the last few years, but this has slowed over the first half of 2023.
“It’s important for all investment managers to have a clear point of differentiation and be clear what their products are about and where their expertise is. In the last six months, we’ve been focusing on integration – but that doesn’t mean we aren’t out speaking to clients, [discussing] the story around why we continue to believe strongly in Australian infrastructure.”
Australian focus
Bessell says the team is solely focused on Australia, free of the AMP Capital international business that raised money internationally for global investments and funds. “We didn’t do a huge amount of fundraising offshore [previously] – but Australia is still seen as a really attractive market to invest in because, unlike a lot of other developed economies, we still have a high population growth rate,” he says, which makes a compelling story when combined with a stable government and proximity to growth economies in the wider Asia-Pacific.
“If you look at the top investors, a number are shifting away from investing in global funds that can invest anywhere, to being more region-specific. Most investors are investing in infrastructure now, but when they first went in, they went into global funds as it was easier to get approval. Now they have become more set, we hear they are looking to evolve their thinking a bit more, and be more targeted and specific.”
The team is also keen to expand its base of wholesale and retail investors, a network to which Dexus gives them good exposure. This arm of the strategy has got off to a flying start, with a new Wholesale Airport Fund closing oversubscribed at more than A$130 million ($89 million; €80 million) in June. The WAF owns 1 percent of Australia Pacific Airports Corporation, the unlisted holding company of Melbourne Airport and Launceston Airport, and was the first fund brought to market by Dexus following its AMP Capital acquisition.
Cummings emphasises repeatedly during our discussion that the business is in an integration phase, focusing on its existing funds and long-held investment thematics. But there is also an eye on the future, too.
“We’re not to going to rule anything in or out at this stage,” he says. “As we look to grow further, we’ll look at [new] products – is there market appetite for a real asset product? That’s something that’s worth exploring.”
On being asked if they hope that Dexus’s new infrastructure business might outgrow its real estate arm one day, Cummings replies: “The ambition is to integrate and grow – maybe come back and ask me that in 12 months. If you look at the pipeline of opportunities, I think infrastructure would be larger in Australia at this stage – but we’re just focused on what’s in front of us at the moment and dealing with that.”
It’s clear that the team are focused on new opportunities amid what must feel like a fresh beginning. With a more focused leadership team in support and fewer distractions around them, the Australian infrastructure equity team at Dexus will hope they can move on and leave the past behind them.