IFM Investors and ISPT in merger talks despite ‘fundamental differences’

The Australian superfund-owned managers would combine infra and property expertise, but stakeholders say they have distinct governance arrangements that will be hard to reconcile.

Australian asset managers IFM Investors and ISPT are in discussions over a merger that would create a combined entity managing infrastructure, real estate, private credit and private equity assets worth more than A$233 billion ($152 billion; €142 billion), affiliate title Infrastructure Investor understands.

The potential merger has been discussed at several times in the past, according to sources familiar with both organisations, but talks have become serious again recently. News of the latest talks emerged publicly this week in a report by the Australian Financial Review.

Both firms are owned by a collection of Australia’s not-for-profit industry superannuation funds and return any profits to those funds. While many superfunds are on both firms’ share registers, there is not an identical overlap.

IFM and ISPT are understood to be discussing a merger on a “no consideration” basis given the overlap in shareholders, but sources at some of the relevant stakeholders have expressed doubts that this will be able to proceed as smoothly as hoped.

At 30 December 2022, the most recent figures available, IFM Investors had total funds under management of A$211 billion. According to its website, ISPT states that it has A$22.2 billion in total AUM, meaning a combined entity would control north of A$233 billion of assets.

Multiple stakeholders in the firms told Infrastructure Investor that a merger did make sense at a high level due to the potential for asset management synergies, but said the two organisations are more different than they appear on the surface, posing challenges.

‘Resolving differences will be a challenge’

One source who has worked at a senior level within one of the two organisations said: “A lot of mergers don’t succeed across all parts of industry, for many reasons. The challenges here are not insurmountable, but are nonetheless difficult, because there are two fundamental differences between the businesses.

“One is that IFM’s constitution forbids shareholders from being on its board – among other things, that has allowed IFM to succeed globally because there is no perceived or real conflict of interest over a major shareholder and a customer sitting on the board.

“At ISPT, the shareholders do sit on the board. But ISPT has been domestically focused in terms of its capital-raising efforts and that has served it well. It is still a fundamental difference, though.

“The other difference is that ISPT operates a cost-recovery model, so whatever costs it incurs throughout the year, that’s what they charge investors in fees. Whereas IFM competes in the commercial marketplace for talent and systems, and has a profit model. It’s not as aggressive, for want of a better word, as other listed or unlisted fund managers, but it’s still a more commercial model. Resolving that will also be a challenge.”

Sources at two superfunds with interests in both organisations said there is also some disquiet among portfolio heads at some funds, who are more wary of the merger and its implications for how portfolios are managed than senior executive teams at the superfunds, who are generally more supportive.

IFM Investors was formed in 2004 from a merger between the Development Australia Fund – a vehicle established by Australian pension funds to invest in infrastructure and both public and private companies – and Industry Fund Services, an organisation created to provide investment advice and services across those asset classes.

IFM is now best known for its investments in infrastructure through both its Global Infrastructure Fund and Australian Infrastructure Fund (the latter of which was launched under the management of IFS in 1995), and has investment strategies dedicated to private credit, private equity and listed equities.

ISPT, formerly known as Industry Superannuation Property Trust, was established in 1994 and was co-founded by AustralianSuper, Cbus Super and HESTA. It has added several other funds to its share register since, and invests in Australian real estate across several funds and separately managed accounts. Its largest single vehicle is the unlisted ISPT Core Fund, with AUM of A$18.05 billion.

IFM Investors and ISPT had not responded to a request for comment by time of publication.