Launched about six years ago, the fund invests in listed infrastructure companies, including utility and transportation resources.
In an interview with Dr. Investment Week, The Australian fund manager says they came in contact with Hong Kong utilities and their mass-transit network about 18 months ago.
However, they have now withdrawn due to “political risks” and “mainland Chinese government’s move in Hong Kong”.
Tensions are running high in Hong Kong’s pre-epidemic protests over a proposed extradition bill and subsequent imposition of national security laws in Beijing, under which many pro-democracy lawmakers and activists have been arrested or imprisoned.
Tonkin said he now sees Hong Kong as an emerging market, an area he doesn’t normally see because he invests in infrastructural resources.
“Many of these assets have shareholders in a state or municipality,” he explained. “You are negotiating with the state and municipal governments. And when you enter that place in the emerging market, you have to be really careful about the risk of corruption and bribery. ”
He added that on top of that, there is a risk of foreign shareholders in state-controlled assets where foreign shareholders may not have much respect for ownership rights.
However, the manager added that the fund does not have much turnover, with 60% of its current assets held from the start.
The main reason for turnover is M&A activity or if they feel that the cash flow or stability of assets is not so good.
Private market
Tonkin says there are a few examples of investors holding stock funds because they enter the stock market and personally accept listed businesses.
This is the result of “disconnection” between public and private utilities, the manager explained.
Asked about recent comments, particularly from Larry Fink about the risks to oil and gas companies, he said he did not agree with his concerns.
Late last year, Fink said the removal of oil and gas would only shift resources from public to private, meaning they would end up in the hands of less transparent actors who are not committed to environmental improvement.
He says if anything, he has seen the opposite of the trend in recent years.
“So far, if you want to sell fossil fuels, you can’t find a commercial buyer,” Tonkin said. “So in recent years there have been several IPOs of fossil fuel related assets and retailers have held them.”
Last October, a metallic coal mine successfully launched on the AIM stock market in the UK. Ben Creek’s IPO has raised 8 million, which will be used to finance his company’s coal mining activities.
However, in raising funds, Tonkin believes that there will be fewer and fewer public buyers of such assets – a move he sees as positive.
“It reduces the appeal of these resources and increases funding costs. If you have a fossil fuel resource, it will be increasingly difficult to refinance it in the next five to ten years. Many of these assets carry a lot of debt so they need new sources of equity, “the manager explained.
He added that it is becoming increasingly difficult to insure them, which is “an important part of the puzzle”.
Tonkin went on to say that “investors should not hold bad assets and try to change them”, instead arguing that it was the role of governments and regulators.
The manager noted that he firmly believes in the power of collaborative action, especially for certain assets.
