Jenny Ruth: Recognising and lauding a business hero

Posted by Henry Tongue in Investing News & Insights, Kiwisaver on

Mon, 26 Jul 2021 by Jenny Ruth

New Zealand isn't that great at recognising our business heroes, let alone lauding them.

And I bet if this column was tearing Infratil and its manager, HRL Morrison & Co, to shreds for fee "gouging", it would attract a much bigger audience.

The only trouble with that angle is that the NZ market contains another manager that amply demonstrates what a truly rapacious attitude towards fees looks like, Canada's NorthWest Healthcare Properties Real Estate Investment Trust, which manages Vital Healthcare Property Trust.

Nobody could seriously put Infratil in that league, notwithstanding the regular whingeing about fees.

An obvious difference is that Infratil's management has to produce annual returns of 12% before any incentive payments kick in, and then the fee is 20% of any outperformance, while NorthWest takes a flat 10% of any increase in Vital Healthcare's net assets.

Infratil's latest annual report notes that during Marko Bogoievski's tenure as chief executive, the company has returned 19.8% a year to shareholders.

Even if bank deposit rates weren't so far down the toilet, that's a handsome return by any yardstick.

Infratil's market value has gone from $848 million in January 2009 when Bogoievski took the helm to $5.15 billion when he stepped down on March 31 this year.

Tip of the iceberg

But Infratil is really just the visible part of the Morrison & Co iceberg; its funds under management have grown over that time from $2.1b to $21.5b last week when the company announced Bogoievski was relinquishing that position too.

Obviously, he hasn't achieved that single-handed; Morrison & Co's staff numbers have grown from fewer than 25 to about 150 now and it has offices in Australia, Britain, the United States and a small presence in Hong Kong as well as its Wellington headquarters, Bogoievski said.

The annual report blurb said Infratil is "a more adult version of Infratil 2009" and he had moulded it into "a more structured business" than his predecessor and company founder Lloyd Morrison's "more opportunistic approach".

That's not to disparage Lloyd Morrison, who died in 2012 after battling leukaemia, but the characters of the two men are clearly very different.

"Even all these years later, his type of thinking still has a strong influence on the business," Bogoievski said.

He describes the business he arrived at as chief operating officer after he left Telecom, (now Spark) where he had been chief financial officer, as containing "a number of strong personalities who all knew what they were doing. No one was telling them what to do".

The best ideas

His job was "trying to make sure all the resources we had were pointing at the best ideas".

While Morrison revelled in being part of the national debate, passionately promoting the need to retain NZX as part of NZ's sovereignty and advocating that we throw off the remaining British shackles still represented in the national flag, Bogoievski is a quieter, more measured and methodical manager.

But Bogoievski did inherit some problem investments, most notably the European airports, which were "sold" after big write-downs, such as the $43.9m writedown in 2013. The Glasgow Prestwick airport was sold for 1 British pound in November 2013.

Perth Energy and NZ Bus were also disappointing investments.

But Bogoievski hadn't been in the hot seat long before Infratil pulled off the $700m purchase of Shell NZ's petrol stations and related assets in conjunction with the New Zealand Superannuation Fund, and which later was rebranded as Z Energy.

The pair collected $840m in August 2013 when they sold 60% and floated Z on NZX, and then Infratil walked away with a net profit of $392.2m when it sold its remaining 20% in October 2015.

Morrison & Co executive Tim Brown, who joined the company in 1994, ruefully estimated the proceeds were about enough to cover the losses made on the dud assets Bogoievski had inherited.

Recycling capital

But other asset sales early in his tenure, a stake in Auckland International Airport, Energy Developments and Fullers Ferries, reaped about $392m, achieving $128m over book value, which came in handy in financing the Shell purchase.

Not every investment decision initiated while Bogoievski was in charge was successful in the way envisioned initially, and two stand-outs in that category were the 19.9% of Metlifecare bought in October 2013 and the Australian National University student accommodation bought in August 2016.

Nevertheless, Infratil made tidy profits from selling both. When it sold the Metlifecare stake in April 2017, the company estimated it had reaped annualised returns of 15.5% from the investment. It paid A$82.5m for its stake in the ANU accommodation and sold it in April 2019 for A$162m.

Infratil's most successful asset so far has been 51%-owned Trustpower, the one it owned when it listed in 1994, and from which it spun out windfarm company Tilt Renewables that is being taken over currently.

The $1.93b proceeds Infratil will receive for its 65.5% will wipe out its debt and is a healthy premium over its $704.1m book value.

Bogoievski is quick to hand the credit for Tilt to its chair and Morrison & Co executive since 1994, Bruce Harker. "He's the one who deserves the credit for Tilt."

CDC shines

But the star investment during Bogoievski's reign was the 48% of Canberra Data Centres Infratil bought for A$392m in September 2016 with Australia's Commonwealth Superannuation Corp investing alongside it and Morrison & Co doing the actual managing.

In January, Infratil said this stake had been revalued at between $2.16b and $2.48b, up from $1.52b in March 2020, although the value increase has included further investment.

And such partnerships with government-connected entities have been characteristic of Infratil's investments since its inception.

Wellington Airport, for example, is two-thirds owned by Infratil with the other third owned by Wellington City Council.

Until Australian Super's opportunistic takeover attempt late last year, Infratil shares had been trading at about a 30% discount to net asset value, about par for the course for the company since it listed on NZX, and analysts attributed about half of that to the management contract.

One thing the takeover attempt did do was flush out some local appreciation of Infratil's achievements – BusinessDesk's major shareholder declared the company "a class act", for example, and Fisher Funds' former chief investment officer Frank Jasper compared it to one of the best "houses" among NZ businesses that definitely shouldn't be sold to any Aussies.

Can it grow to $1b?

But Bogoievski also sees Infratil's complexity as problematic in that it makes the company more difficult to understand, particularly for overseas investors who lack the familiarity with Infratil that local institutions and retail investors have.

That's one reason why local institutions have increased their Infratil holdings from 17% in 2009 to 29% now.

It was a wish to reduce that complexity that inspired Bogoievski's change to the investment criteria to asking the question of whether a particular investment has the potential to become worth $1b.

It was on that criteria that the Metlifecare and ANU investments had failed to live up to initial expectations.

One Infratil investment Bogoievski reckons the market doesn't fully appreciate is the Longroad renewable energy business in the US that he said "is a real sleeper" that analysts aren't paying enough attention to.

But there have been a couple of major investors that Infratil tilted at and lost out on, the NZ Waste Management assets that were put up for sale in 2014 and the Australian Pacific Hydro business it lost out to in late 2015, in both cases to Chinese buyers with deep pockets.

"Those are always painful" because they're costly exercises as well as time-intensive, he said.

But the NZ business scene should be happy to know Bogoievski, 58, isn't planning on retiring.

He will remain on the boards of Infratil investment Vodafone NZ and Morrison & Co's recently acquired Telstra InfraCo Towers and hopes to be involved in identifying future investments.


Jenny Ruth

Senior Journalist

+64 27 408 8800

Jenny has been a financial journalist for more than 37 years. She has covered everything from listed companies to economics for outlets including the Australian Associated Press, Bloomberg News, Radio NZ and National Business Review. Jenny was the New Zealand Shareholders’ Association business journalist of the year for 2018.