The benefits of club membership

ConnectEast was the kind of deal CP2 wants to repeat – identify a quality core infrastructure asset and bring large institutional investors to the table. Managing director Syd Bone talks to Andy Thomson about the firm’s model.

When Syd Bone says he thinks he knows what institutional investors want, it’s no bald claim. After all, until he joined Sydney-based fund manager CP2 as managing director in September 2010, Bone was chief executive of Victorian Funds Management Corporation for five years – an organisation managing some A$30 billion (€25 billion; $31 billion) on behalf of the State of Victoria.

What they want, according to Bone, is access to quality core infrastructure opportunities. But what they don’t want, in his view, are blind-pool funds. And that’s why the model being honed by CP2 revolves around sourcing opportunities on a deal-by-deal basis and then pulling together a club of institutional investors from around the world.


It’s an approach that was perfectly exemplified by the A$2.2 billion public-to-private acquisition last year of ConnectEast, the Australian Stock Exchange-listed owner and operator of the EastLink tollway in Melbourne. CP2, which had built up a 35 percent stake in the asset, rounded up an impressive consortium of eight institutional investors to acquire the remaining 65 percent.

The group comprised: Universities Superannuation Scheme (UK); APG (Netherlands); National Pension Service of Korea; Leader Investment Corporation (a subsidiary of China Investment Corporation); ATP (Denmark); New Zealand Superannuation Fund; Teachers Insurance and Annuity Association of America; and Mirae Asset Maps/Korean Teachers Credit Union.

“We are pleased to be able to bring global capital to infrastructure investment in Victoria and Australia,” Bone proudly proclaimed in a statement issued to announce the recommendation of the deal by ConnectEast’s independent directors.

Seven months on from ConnectEast’s removal from the Stock Exchange’s official list, Bone talks exclusively to Infrastructure Investor in Sydney. “There are very big global investors seeking core infrastructure assets,” he reflects. “But what we’re doing is quite different to launching funds and getting investors to co-invest with you. Investors are saying ‘we don’t need funds, we don’t want blind pools any more’.”

Does this mean that CP2 is effectively a ‘deal broker’? Not according to Bone, who insists that the remit is more demanding than this would imply. “Our service goes beyond what the investment banks do, where they pull the deal together and then walk away. We do the deal and then we manage the asset as well,” he points out.

This is not to underestimate the time and effort involved in assembling an eight-strong group of investors. “It was all-consuming, it took up most of our time,” says Bone. “But the reason we call it a club is that we are looking to do more deals with the same group so that things are simplified next time. That’s the plan. We’re used to each other now, and we think that the club members will want to do further deals.”


Another aspect of CP2’s model that Bone says is unusual is that it is happy acquiring either listed or unlisted assets. “We are not like other investors who only invest in unlisted opportunities,” he says. “They have no flexibility to go into public markets, but our mandate allows us to do that. With ConnectEast, we built up a big stake in the company which put us in a position where no one else was likely to get involved. The 35 percent stake was a good position from which to negotiate and say ‘why don’t we buy you out?’”

So does this mean that a stock market asset is likely to be the subject of CP2’s next deal as well? “It doesn’t have to be a public-to-private,” Bone clarifies. “There are periods when assets are cheap on the stock market, and it could be argued that Europe is currently more interesting than Australia in this respect. But we look at unlisted assets too, as long as they’re outside auctions – we look for opportunities before they come to market.”

CP2 was by no means a novice to the Australian toll roads sector when it acquired ConnectEast. Over the course of 2009 and 2010, it had notably sought to acquire toll road operator Transurban alongside Canada Pension Plan Investment Board and Ontario Teachers Pension Plan.

Following the failure to complete a deal, CPPIB and OTPP subsequently sold their 12 percent stakes. CP2 still retains just under 5 percent of the business having sold a stake of around 8 percent in March this year in order to avoid two clients – understood to be Universities Superannuation Scheme and ATP – being overexposed to the sector in the wake of the ConnectEast deal. Australian sovereign wealth fund Future Fund was reported to be the biggest buyer of shares in the transaction.


With more than A$2.5 billion under management (according to its website), CP2 certainly has some heft. And it may be that Europe is next on the agenda. Bone says nothing to confirm this, but arguably drops a hint or two. “Some would say Australia is a safe haven,  but a lot of people are looking at the Australian market and prices may drift up. Europe is cheaper although people are nervous about the South and pricing may be an issue in the North. But we quite like Europe.”

Australia, he believes, still needs to offer more assets for privatisation. “The superannuation funds say there is not a shortage of capital but of assets,” says Bone. “This is encouraging state governments to bring assets to market. They have to respond because they don’t have money and they can’t borrow money without affecting their credit rating.”

One thing Bone is convinced about is that there are “a lot of pensions that want involvement if they can find the quality of core infrastructure in which they want to invest”. That’s no surprise, however, since helping to find that quality of asset is CP2’s stated mission.

CP2: a potted history

1997: Capital Partners established as a sell-side research provider.
1999: First advisory valuation client retained.
2000: Commencement of non-discretionary asset management.
2001: First international client retained.
2003: First equity issued to a non-founding shareholder.
2005: First fully discretionary infrastructure investment mandate.
2006: Funds under management reach A$1 billion.
2007: Funds under management reach A$2 billion.
2008: Rebranding of Capital Partners to CP2.
2010: Consortium bid for Transurban along with Ontario Teachers Pension Plan and Canada Pension Plan Investment Board.
2011: CP2 Club successfully acquires ConnectEast.