(Repeats with no changes)
* Canadian pension funds worried market overheating
* Funds concerned valuations overlook illiquidity
* Executives say auctions create risk of overpaying
* Private equity players gripe at Canadians' 'dumb money'
By Matt Scuffham
TORONTO, Feb 5 (Reuters) - Canada's biggest pension funds
say they are walking away from more and more global
infrastructure deals, citing concerns that intense competition
for assets has driven valuations too far.
The shift could help cool global prices for tunnels,
airports, toll roads, energy networks and other infrastructure
as Canadian pension plans are among the world's biggest and most
active buyers.
Pension funds' investment in infrastructure has risen since
the 2008 financial crisis, as plunging interest rates and bond
yields drove these players to seek steady returns elsewhere.
Global equity and commodity turmoil has done little to dampen
that interest and intense competition for a limited number of
assets has been reflected in recent valuations.
Some investors, particularly in private equity circles,
complain that the Canadian funds - dubbed "maple
revolutionaries" because of the strategy of direct equity
investments they pioneered in the 1990s - have a tendency to
overpay.
Senior executives at the leading Canadian funds defend the
merits of past infrastructure deals, but say they are worried
prices no longer reflect the illiquidity of the assets, which
cannot be sold quickly like stocks or bonds.
"The market is overheated. We have stepped out of the
bidding for a lot of assets over the last two or three years," a
senior executive at one of Canada's biggest public pension
funds, who declined to be named, told Reuters.
Among recent deals with no Canadian participation, British
rail rolling-stock owner Eversholt Rail Group was sold for $3.8
billion to Hong Kong's Cheung Kong Infrastructure Holdings
(CKI).
Canadian funds still expect infrastructure to grow as a
proportion of their overall investments because most plans have
money rolling in and view infrastructure as a good match for
long-term liabilities. But they say want to be more selective.
Canada's biggest 10 public pension funds have more than
trebled in size since 2003 to more than C$1.1 trillion in
assets. A third of that is now held in alternative assets such
as infrastructure, real estate and private equity. MONEY?
Four Canadian pension funds now rank among the world's top
10 infrastructure investors, according to Boston Consulting
Group. At the end of 2014 the four funds had $36.8 billion
infrastructure assets under management, equivalent to 41 percent
of the total infrastructure assets held by the top 10.
(Graphic: http://tmsnrt.rs/1SLRtfJ)
One New York-based investment banker, speaking on condition
of anonymity, said private equity firms that have lost an
infrastructure auction to a Canadian pension fund often grumble
they paid too much, referring to rival bids as "dumb money".
For example, last year's acquisition by Canada's CPPIB and
Hermes Infrastructure of a 30 percent stake in Associated
British Ports for about $2.4 billion valued the business at
around 20 times earnings compared with multiples of 10 to 12
that investors say are typical for the sector.
But recent prices do not necessarily mean buyers are paying
too much said Dougal Macdonald, the head of Morgan Stanley (N:MS)
Canada, which has advised on a number of deals involving
Canadian pension funds.
"In a low rate environment, target returns across virtually
all asset classes have come down. It is simply a resetting of
returns for the right assets," he said.
Canadian pension funds typically look for nominal returns of
6 to 8 percent from infrastructure, a few percentage points
above what they would expect from fixed-income investments.
Bankers note that private equity funds often seek returns of 20
percent or higher, meaning pension funds can afford to pay more.
"CLUB DEALS" AND BIDDING WARS
Still, Canadian executives said their funds should avoid
being drawn into bidding wars as part of competing consortia.
"You've got to try and avoid auctions because they can get
crazy. If you're just walking around with an open cheque book in
these markets you're going to pay too much," said another
executive with one of Canada's three largest pension funds, who
declined to be named because of the sensitivity of the issue.
The executive said Canada's largest funds should co-operate
more frequently. However, such "club deals" remained rare for
the top three - the CPPIB, the Caisse de depot et placement du
Quebec (Caisse) and the Ontario Teachers' Pension Plan.
In the past they often found themselves competing against
each other as well as foreign rivals that include South Korea's
National Pension Service, Dutch pension fund APG, Australia's
Future Fund, private equity and some sovereign wealth funds.
Among recent deals, New South Wales Premier Mike Baird
hailed a "stunning result" for the Australian province after a
consortium including the Caisse agreed to pay $7.5 billion for
an electricity network last year, significantly more than
analysts expected.
The group had seen off competition from other investors
including the CPPIB and a unit of another Canadian pension fund.
The Caisse said at the time it was confident the acquisition met
its investment objectives.
Canadian funds are also involved in a takeover battle for
Australian port and rail giant Asciano AIO.AX , with Brookfield
Asset Management BAMa.TO bidding against a consortium that
includes the CPPIB.
Asciano's shares are trading below both groups' offers but
at 34 times their earnings still look expensive compared with
its nearest rival Aurizon, valued at 13 times its earnings.
"There's a lot of money chasing assets," an executive at an
Ontario-based fund said. "The important thing is to maintain our
discipline".
($1 = 1.3699 Canadian dollars)
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Canadian pension funds among top infrastructure investors http://tmsnrt.rs/1SLRtfJ
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