TMF Groups’ Paul Adamiak proffers Australian private equity and infrastructure insights
Article 7 minute read

TMF Groups’ Paul Adamiak proffers Australian private equity and infrastructure insights

23 February 2018

CCIV and LPCIV - Australia's internationally understood investment vehicles.

TMF Group commenced its Australian operations simultaneously in Sydney and Melbourne in 2006, resulting from the purchase of EY’s corporate secretarial business.

“TMF Group in Australia provides domiciliary and management, accounting, tax compliance, corporate secretarial and payroll services to foreign companies entering into the Australian market,” explains Paul Adamiak, Senior Manager, Alternative Investments (Sydney). “It also has a specialist team dedicated to both domestic and foreign alternative investment managers, primarily investing in illiquid, longer term assets such as private equity, real estate, infrastructure and agriculture.”

TMF supports investment managers by providing bespoke back-office solutions that enhance their global operations, administering complex international investment structures and supporting portfolio companies expanding and operating abroad.

Its Australian fund and corporate services business currently has assets under administration in excess of AUD6 billion and growing rapidly, confirms Adamiak.

Australia is one of the world’s most attractive markets for infrastructure investments and provides a compelling market opportunity for a leading service provider such as TMF Group. It currently supports four of the world’s top 10 global infrastructure managers, and has seen the number of foreign investors participating in Australia’s infrastructure market rise from nine countries in 2008 to more than 15 countries today.

Growth in Australia

Last year, at the 2nd annual PEI Infrastructure Investor Australia Summit in Melbourne, the sustainability of Australian infrastructure investment opportunities was debated. In short, the consensus was broadly in the affirmative, but various panelists at the Summit agreed that there would be significant product development, like new assets and strategies falling within the infrastructure scope, for example the recent lease of the NSW Land Registry for AUD2.6 billion. In addition to a broader asset class, 2018 is anticipated to be a much bigger year than 2017 in terms of infrastructure spend (forecast around $16bn, almost double 2017). There is an the East Coast infrastructure boom taking place, resulting from various major road projects (WestConnex/NorthConnex), the Melbourne metro, the Sydney metro and the Sydney light rail.

One factor that has been critical in helping attract foreign asset managers has been a favourable tax regime. A decade ago, Australia introduced the Managed Investment Trust tax regime.

As Adamiak explains: "Foreign asset managers targeting Australian real estate, infrastructure or agriculture assets can benefit from a reduced withholding tax of 15 per cent versus the usual 30 per cent on fund distributions abroad.

“Our clients wanted a ‘one-stop-shop’ for MIT compliance.

“As a result, in 2016 we formed an alliance with Evolution Trustees. Together, we provide a solution to ensure all the MIT requirements are met. We provide the investment management & administration services and Evolution Trustees provide the trustee and custody services.”

The alliance has resulted in the establishment of several MIT vehicles for their 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.

“Our joint offering was well received last year and for 2018 we have even bigger growth ambitions on our mutual portfolio,” adds Adamiak.

Australia’s investment vehicle

One exciting development that could also play to TMF Group’s advantage, and allow it to extend the range of services to Australian funds, is the decision made by the Australian government during the 2016-2017 budget to commit to developing a Corporate Collective Investment Vehicle (CCIV) and a Limited Partnership Collective Investment Vehicle (LPCIV). The intention is that Australia will have an internationally understood investment vehicle that can be marketed to foreign investors, including through the Asia Region Funds Passport regime.

“This is a major change to the Australian fund structuring arena,” comments Adamiak. “It introduces the concept of a corporate director, modelled on the UK OEIC regime and a depository, modelled on the UCITS V and AIFMD requirements.

“TMF Group currently renders depository services in both the Netherlands and Luxembourg. The legislation proposed by the Australian Exposure draft presents an exciting opportunity for the Australian funds management industry to harmonise with its global peers and provide investors with familiar concepts.”

Significant inflow from institutional investors

As well as tax and legal structuring drivers, the plain economic truth is that, from a global standpoint, alternative assets, and in particular private equity assets, have attracted significant inflows from institutional investors.

This is good news for global fund administrators who wish to see their clients’ AUM grow. To put things into perspective, according to the latest Preqin data, global private equity funds raised USD453 billion, exceeding the previous high-water mark of USD414 billion raised in 2007.

Transaction volume was broadly in line with the past four years, with over 4,000 deals completed.

Adamiak notes that whilst the majority of this capital was raised in North America & Europe, the local industry had a robust year with an estimated AUD7 billion of capital raised and ready to deploy. 
“MinterEllison’s report ‘Directions in Private Equity’ reported 2017 to be a buoyant year. It detailed 37 exits with a holding period averaging 55 months and with an average sell value of AUD359.98 million,” confirms Adamiak.

Each year, the Australian Private Equity & Venture Capital Association Limited (AVCAL) judges fund managers for their various underlying portfolio company transactions, focusing on good corporate governance, responsible investment and creating sustainable growth.

There were a broad range of transactions in terms of size and industry with AVCAL awarding, for example, Quadrant Private Equity as Best Management Buyout between USD300 - USD500 million for their investment in Canberra Data Centres (CDC) and KKR as Best Management Buyout over USD500 million for their investment in GenesisCare.

Other significant transactions include the Macquarie-led AUD1.6 billion acquisition and privatization of the South Australian Lands Titles Office, Carlyle Group’s AUD517 million exit in Coates Hire and TPG Capital’s sale of Australian electricity distributor Alinta Energy for AUD4 billion.

Unsurprisingly, Adamiak says the group is “very upbeat” for 2018:

“A major US client has already indicated to us that they have more Australian targets on their radar, which we will be required to support them on. However, it is still very much a sellers’ market with the high multiples currently being paid for assets and the amount of capital chasing quality assets. Thus competition is fierce.”

Outsourcing trend continuous

In terms of the outsourcing opportunities within private equity, TMF Group is already supporting many of the world’s largest private equity managers to execute transactions in Australia and globally. Adamiak suggests that approximately 50 per cent of managers in Australia perform their administration requirements in-house while the other half outsource.

“The trend is clearly to outsource,” he says. “Our clients’ operating models are constantly evolving and there are significant investor pressures to become leaner, with simpler operations and cost rationalization.

“TMF Group differentiates itself from its peers with its global coverage. We have a fully integrated global platform for SPV administration, while offering fund services from key onshore and offshore locations. Global asset managers are increasingly looking for a service provider that is truly vertically integrated, providing global administration services from a single point of contact.

“For example, we use our coverage to streamline the asset bidding process. Tender processes are often very competitive and time sensitive, prior to a bid being submitted, a multi-jurisdictional acquisition structure may need to be setup, tax & legal advice signed off, KYC completed for the lending consortium. This may result in various new entities being setup in different locations. TMF Group facilitates cross-border transactions, while ensuring compliance and streamlining transparency.”

An increase in direct investments

Traditional LPs are increasingly investing directly, which has resulted in more competition for assets and causing GPs to shift priorities. Some, for example, are increasingly emphasizing their asset management prowess rather than origination deal access to deal flow.

But with so much regulation to contend, demonstrating that prowess requires PE and Infrastructure managers, both in Australia, and globally, to partner with reliable outsourced fund administrators to relieve the burden and allow them to focus on honing their prowess in the front office.

“The regulatory burden is only increasing. Global initiatives such as FATCA, CRS & BEPS are requiring the collection, disclosure and reporting of specific information. We’re supporting our clients by taking on these specialist compliance roles and responsibilities and allowing them to focus on their core activities,” concludes Adamiak.

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This article was originally published by Property Funds World and Private Equity Wire.

Written by

Paul Adamiak

Senior Manager – Alternative Investments

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