YouSaid · the spoken record

Ross Israel

lines on the record: 85
first: 2018-05-21
most recent: 2018-05-21
sittings or episodes: 1
sources: podcast

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“About 60% internal and 40% external would probably like to balance that even further. That would certainly be the objective and some of the evidence from the other asset classes that QIC has in its stable. So we've raised an external fund with majority external capital. There were some internal clients that were in it, but in the main it was external clients. And that's been enormously positive for our particular part of QIC, but we're following in the footsteps of others who have already sort of done it in the fixed interest and in the real estate space.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a philosophical decision at QIC that in order to continue to position differentiation in the asset classes, one of the measures was being able to attract external capital. And part of that was to calibrate market metrics on fees, on remuneration, on performance. And so those elements, I think, have really evolved for corporation over time. So we've become more alternatives tilted and less listed tilted because we couldn't differentiate in those asset classes. So we surrendered an internal capability and externalized that. And in the areas that we've retained, we've built up track records and we've been able to track third-party capital, which has been very broadening for the business, very outward focusing, which is sort of very unusual for a government-owned entity.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's interesting because I think the listed view is quite valuable in sentiment. And so often in talking with the CIA, my key question to him is what's your sentiment right now? Because it gives some test of where exuberance is or isn't in some of the sectors we have. So the utility sector is a large space in the listed market. Transportation, a little bit sort of less, there's less reference points necessarily, but in assets like water and gas, electric utilities, there's a sense of the defensiveness or not, and that's quite helpful when we take that into private asset sales.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Energy storage and just get a sounding from the private equity guys who might be seeing something going on in their manager set. And then in real estate, they're more like a direct player where their feed from retail malls is quite interesting and sort of potentially driving where economic activities emerging in Australia and different corridors. And similarly, they've got assets here in the US, so that helps a lot.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm taking our pipeline, our sort of key macro factors that we are sort of shaping our investment plan for each year. So each year we sit down, we have a macro view on themes that are going to affect infrastructure. Then we put that into basically a set of investment themes across the sectors. And then we have our sector teams build up from the bottom opportunities in each of those themes. And so I go to that meeting with those things in mind or a delegate from our team goes. And then we are sort of always looking to sort of try and test through some of the forward work of research, like where exactly there is relative value emerging infrastructure. So we found it very valuable to test that sometimes in that forum and get a listed metric on something like that, like mobility as a service, for example, or the disruption that's occurring with renewables.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Probably every couple of months that they come together. And it's a lot of informal in the corridor and we don't sit that far apart from each other.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's typically like one or two representatives from each asset class. And if you want to call it chaired by the CIO of the defined benefit fund. And it's sort of an open exchange. You might sort of go through his weightings. We might give our observations on deal flow and where we're seeing opportunity in the market. So it's pretty free form. It wouldn't be strict. Here are the seven things we're going to discuss necessarily.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“macro factor exchange, the input we get from our chief economist who comes into that and puts a house view as a base view which we all sort of leverage off. So while we're allowed in our own asset classes to pursue our investment strategies, we have that opportunity to cross fertilize and sound each other out.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, we have an exchange where we bring all the asset classes together and there is an opportunity for people to sort of question. We have the CIO of the Defined Benefit Fund who's sort of got allocations into all of the strategies. And he's sort of a great cross-reference source for us. And so with his mindset, with his sort of investment objectives, I think we challenge internally quite well with a very close client, which is really very valuable. And then we're able to leverage that with other external money we manage, I suppose, and get their perspectives as well. So from that point of view, it's interesting private equity, real estate, and infrastructure, those three have really worked in different paths and different cycles. And some sectors cross over, which are quite interesting. Others don't. But in an exchange, it's like...”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a fascinating data set because, on the one hand, that makes a lot of sense. On the other hand, sometimes public markets lead economic activity. So how did you take what you're learning and try to figure out how you can develop lessons across the asset classes?”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“And it was actually really interesting. We went back and looked at that profile of traffic and it fell off about three to four months before the GFC. It actually fell off a cliff and it's sort of one of those things that within our YCIC business, we're becoming more aware of is the private assets can give great insight into some of that primary data that doesn't always get into the mindset of markets as quickly as you might think. And so by calibrating different investments, we've been able to sort of take some takeaways with respect to where we are in the market cycle, relative value, and that's been sort of an interesting learning as we've been in it.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“That was, so the lessons learned, you know, we probably got the thesis right just before the GFC that there was going to be an opportunity, particularly in emerging markets, to add port concessions. And they did come up. Unfortunately, what happened was the family didn't have the capital to ride that opportunity set with us and basically they didn't want to get diluted. So we got squeezed in not really growing the base of the business in the way we wanted to. Spain got thumped in the GFC as you would know.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“If we exclude New Zealand, which often people do in the realm of Australasia, the majority of the assets are in Australia. So we've got two or three assets here in North America. We've got the Thames asset in the UK.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“We don't have that as an imperative, but the underlying liability profile of the fund, particularly the defined benefit fund, is a CPI plus sort of liability that's growing. And so if we can get a CPI plus linked cash flow in Queensland, then we're directly offsetting for that particular pool of capital, the liability with a great asset. Elsewhere where we're managing capital outside of sources based in Queensland, they're looking for diversified stable, predictable cash flows and they like the inflation hedge. So we work to find that in particular assets. Now, not all infrastructure assets have that in the revenue line or in a contracted asset, but that's what we look to endeavor to provide is a diversified set of those cash flows, particularly across the sectors and across the geographies.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Be a permanent owner, and some of these assets are very scarce. They might not trade very often. And from that point of view, if you've got certain key assets, gateway, airports, gateway ports, very strategic water assets, for instance, some of these things are quite scarce. And so the ongoing value of them in the portfolio is very well regarded by the trustees who are looking for capital preserving assets long duration. I mean, that is what the asset class sort of is delivering into the superannuation and pension market that we observe.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“looking to sort of renew the management because we had to sell queens of motorways because it was a concentration issue but in the main we are looking to sort of build out the assets for the pools of capital we manage and that has become probably a more active exercise now than it was in the beginning.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“That example I gave on Quizamotus was an exception. Most of the assets are really held for duration and our challenge is getting alignment with management, having good governance in those assets, particularly, and then over time driving value, whether it's through expansion of the asset, improved performance and operations of the asset. And that is really an increasingly active management exercise with the value chain that we see evolving in logistics, in energy particularly. We're seeing an emerging sort of decentralization of a system in electricity that was very centralized with the sort of emergence significantly of renewables, smart grids, and also battery storage. These are really quite important disruptors to the historical model. And so from that point of view, where we're always”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“And we build a network company. And then we sold it four years later for about a two times money multiplier, which was a great deal for the defined network.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“The last asset in that program is actually really quite interesting because it was a toll road company which was not really in a shape to be sold. So what they did, which was quite innovative, was they vested the whole asset into the public pension fund, the defined benefit fund as a contribution in kind, and we managed that asset and commercialized it. So it went in, I'd call it $3 billion and change. We commercialized it. It was an asset which had no treasury function, no debt. It basically had a phone at the end of the CO's desk where they swept cash into the state treasury. And so we literally over a three-year period were able to commercialize it. And then we added a couple of toll roads. It had two toll roads when we acquired it. And then we added three other toll roads that the city owned.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“So that deal was a privatization by the Queensland government. They had a program of assets and this was an interesting privatisation program. It had a railway which got listed. It had forestry assets which got sold in a public auction. The Port of Brisbane was sold as an auction asset. And so we joined up in a consortium to bid for that asset and we ended up being successful.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“So let's just talk about one of these assets, the Port of Brisbane. You might think from the outside, well, you're in Brisbane. The Sovereign Wealth Fund of Brisbane, don't you own the port already? How did that come about as a deal?”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Which you're looking to sort of manage. The approach we had was a very buy and hold approach from scratch, a zero weighting. They wanted to get to a certain level and obviously get that diversification over time.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“In some ways it is, otherwise it's not. So first of all, three sectors we're trying to diversify across transport, so road, rail, airport, seaports, car parking, gas, electric water in energy and utilities, and then P3, so the relevant private public-private partnership models. So we've gone into some assets which have very diversified cash flows. So I'll give you an example, the Port of Brisbane, which is a landlord port, has multiple commodities, not just containers, but also coal, grain. So we built up as best as we can a diversified, uncorrelated set of assets. And that's sort of the ongoing objective that we had is adding more direct investments by geography, diversified by sector, diversified by assets life cycle as well, because life cycle risk in the duration that we're looking for in infrastructure is a real issue. You've got a CapEx cycle in all of the assets.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the first direct asset we did was we participate in a consortium that brought into Thames Water in the United Kingdom, the largest water waste water company. And then it built from there in terms of other sectors.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I joined with another colleague who co-founded the team and she and I spent seven months working out what exactly they wanted, which was an interesting journey. They sort of thought they were going to do fund of funds and we realized with cost pressures and management fees that in essence the trustees or the boards didn't really want that equation. And so our objective was really to build a diversified global portfolio. We started doing a number of direct investments and we also augmented that with some funds to get the diversification because we were very skewed in the beginning with respect to a couple of sectors.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a global index. The Australian market's pretty small and it's pretty skewed in terms of sort of subsectors, resources and financials dominate. The push on the alternative side was quite strategic. They were probably slow relative to their peer groups in the superannuation funds in Australia to allocate into private equity and infrastructure. And today we're up around, to give you some idea, an allocation of between 5% and 10% of the total fund is in infrastructure. And similarly, even probably higher weighted a little bit in terms of real estate and in PE, I think it's around the same 5% to 7%.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was a bit of both. It was a bit of both. Internally we did equities and subsequently over the last 10 years we've got out of listed equities in the defined benefit fund. We outsourced that. And it's probably tipped to more of a passive allocation more than an active one.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“It was equities, it was fixed income, and there was real estate, which had been the oldest private capital asset class. The gentleman who started private equity and I started around the same time in 2006-7. And so we were given a brief to build out that capability. Other than that, it had all been sort of predominantly listed”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Mandatory Fund. It's portable. So you and I can move that superannuation if we wanted to around different providers, except to some extent in the public sector funds and the Queensland funds had that restriction. But part of the DC plans now had it removed. So that's created today the fourth largest savings pool in the world. So it's a significant aspect and it feeds into why I think infrastructure investing has been well supported by that particular institutional group. But QIC created then a capability of sort of fund management, if you like, to manage money in those sort of two areas, particularly to define benefit fund, which was basically vested its whole CIO function is in QIC. And around that, our asset class capabilities evolved over time. We realized that we could do alternatives well and differentiate performance, but conversely,”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so nine and a quarter percent now of everyone's wage is sort of put away as sort of superannuation, locked up to your 65.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“So QIC was created after compulsory superannuation came in in Australia by the Queensland Government because they realised that there was a lot of capital that was going to accumulate in their defined benefit, defined contributions.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“And then we formed a utility fund. And then we did a joint venture with Macquarie Bank. And then I went into the joint venture we listed on the Australian Stock Exchange, which was a great ride. It was really good. We sorted out some assets, bought an asset. What was the structure of that listing? Was it like an evergreen private equity fund? Yeah, so it was a managed fund. And these funds all unwound in Australia off the stable that was Macquarie and then Babcock and Brown as well. And so we were managing a group of electricity distribution businesses and gas distribution businesses and also a gas transmission pipeline in Western Australia. It got to a point there where I've been away from Britain.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“In the 90s, and that was the beginning of quite a few waves that came through over the period from then to now. And from there sort of had a sojourn for a couple years in London with Barclays, BZAW as it was then, and then came back and realised it was sort of like good to do the transaction, but not necessarily to understand how the companies were being managed after the deal. And so that was really the catalyst to get into sort of asset management. And I've just done a lot of stuff in infrastructure. I looked back and I probably had a desire to do private equity, but the brief in advisory was just all infrastructure. So I ended up moving across to an established portfolio at AMP capital at the time. And there was a whole lot of energy assets there which needed to be restructured. So we did that.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Ross, thanks for being here. Thanks for the invitation. There's a lot of great stuff to talk about. Why don't we start with your background? Sure. So I did commerce law at university. I left and went into tax and I realized pretty early on that was not going to be the direction for me. What was it about? Just the grind and the hourly meter, I think, or six minute meter, as they call it as well. So look, it was fun. It sort of began things and then I moved into banking, investment banking was based in Sydney, so I went to school in Brisbane and left, as many people in Australia do, they sort of move out of the smaller cities into Sydney Melbourne. And in investment banking sort of fell into doing a lot of infrastructure sort of advisory really and was sort of lucky, I suppose, there was a sort of wave of privatisation that occurred, particularly in Victoria, in electricity. When was that?”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sometimes investing sounds deceptively simple. If you have a long duration pool of capital, just buy core infrastructure assets with stable, predictable cash flows and earn the yield. My guest on today's show does just that. Ross Israel is the head of global infrastructure investments for QIC, Queensland, Australia's $82 billion Aussie dollar, that's $62 billion investment fund. The Queensland government formed QIC in 1991 to oversee its superannuation fund, and the business has since evolved into a global diversified alternative asset manager. and also serves as a member of QIC's investment committee. He has a quarter century's worth of experience in corporate finance and infrastructure funds management.”
2018-05-21 · Capital Allocators · Ross Israel - Stable, Predictable Cash Flows (EP.53) · IDENTIFIED FROM THE TRANSCRIPT · source