The Infrastructure Fund drops Hastings

31 August 2017 - 12:00 am UTC

Hastings Funds Management has officially lost control of AUD 2.1bn (USD 1.6bn) of infrastructure under its care after investors in one of its funds overwhelmingly voted to dump the asset manager.

Inframation can reveal that investors in The Infrastructure Fund decided at an extraordinary general meeting this morning to fire Hastings as its general partner and search for a new manager that will charge lower fees and offer better alignment with unitholders. 

Long time former Hastings Funds Management staffer and TIF general manager Jonathan van Rooyen led a strategic review on behalf of TIF trustee Guardior over the past six months. 

The move coincided with two failed attempts by Westpac to sell Hastings. Property developer Charter Hall walked away from exclusive talks last month while a 2016 sale process involving US-based investors Massachusetts Mutual Life Insurance Company and TIAA-Creff in 2016 also ended unsuccessfully. 

It is understood TIF unitholders felt they could reduce costs and boost returns because Hastings’ investment model was archaic and had not been updated since its inception 20 years ago. 

“This decision allows TIF to pursue its strategy and create its own identity, as separate from Hastings strategy. It enables a climate for us to have more transparency with our unitholder base on how we fund the growth initiatives in the TIF portfolio,” van Rooyen told Inframation.

Certain influential parties are understood to view the culture of Westpac, a big bank focused on ambitious growth targets and skinny margins, as being poorly aligned with the largely conservative and risk-averse TIF investors.

It is understood Hastings charges a management fee just above 1%, but a source involved in the process said TIF investors believe they will be able to find a manager that charges less than 1%. 

Hastings will remain as the manager for the next 12 months, over which time TIF chairman Bob Lette will lead a search for a new management team.

It is understood this may involve hiring an established group of professionals or could see TIF being folded into an established fund manager. 

Hastings chief executive Andrew Day said the fund manager respected the unit holders’ decision to move on, and pointed out that during the 17 years it had managed the assets it delivered an average 12.8% annual return. 

The investment fund began life in June 1998, investing in the state of Queensland, devouring stakes in Gold Coast Airport and North Queensland Airports before venturing south and west into Perth Airport and the Sydney Desalination Plant.

It tends to favour slightly riskier assets to typical buyers of infrastructure assets, and in turn expects higher absolute returns of around 10%. 

It is understood disquiet first emerged between the mainly Queensland-based TIF limited partners and Hastings management when it bought Port of Newcastle, paying more than AUD 500m more than the next highest bidder.

TIF has a stake in the port alongside sister Hastings fund Utilities Trust of Australia. Soon after taking control of the port in 2014, Hastings is understood to have revalued the asset and controversially hiked charges by 40-60% to coal miner customers including Swiss giant Glencore. A federal court battle ensued, which Port of Newcastle ultimately lost when the court handed down its verdict on 16 August, as reported. This gave the Australian Competition and Consumer Commission the right to arbitrate port fee disputes. 

TIF investors include industry super funds, insurance companies, family offices and statutory funds. The bulk are Australian based, and a handful are located offshore. 

Westpac’s 18-month effort to find a new home for Hastings has taken a heavy toll on management, precipitating a string of departures of origination head Peter Taylor, and investment managers Richard Hoskins and James Fraser-Smith.