Michael Ryder is senior managing director at OMERS Infrastructure Americas, a part of the private markets direct investment program at the C$97 billion ($74.2 billion) Ontario Public Employees Retirement System.
Ryder came to OMERS Infrastructure in January 2018 after working as a senior managing director at Blackstone Energy Partners and a managing director at Morgan Stanley Capital Partners. OMERS Infrastructure has a C$17.9 billion ($13.7 billion) portfolio as of Dec. 31, 2018.
What infrastructure opportunities are you most focused on in the Americas?
We have five core sectors that we focus on in the infrastructure business: conventional and renewable power, regulated utilities, transportation, midstream pipelines and communications and data.
In the North American market…we’re seeing the most activity and the most opportunity in the communications and data space and in the midstream pipeline and terminal space. Both are driven by different things.
As the use of data goes up, we’re seeing the need for fiber networks to be able to move that data around, for data centers that store that data, both large-scale data centers that are more remote and local data centers within the cities that provide faster access.
On the midstream side… with the development of the natural gas and oil shale in North America over the last 10 years, that significantly changed the need for pipelines and terminals and export facilities within North America… North America is becoming much more self-sufficient and actually beginning to export more natural gas and crude oil. Now we actually have crude basins in west Texas, and natural gas up in the northeast here in the Marcellus Formation that are huge sources of supply. We need new pipelines to be able to move that to market and to the water, we need terminals to be able to export, like the big liquified natural gas facilities that are being built, and with the removal of the crude export ban there are also now crude export facilities being built, and the facilities to process all of that.
We continue to look at opportunities in the power space. We bought a renewables development platform last year that has 1.7 gigawatts of operating wind power generation today…that’s called Leeward Renewable Energy. We were very fortunate to make an acquisition of 25 percent of Puget Sound Energy, the largest regulated electric utility in the state of Washington, last year. We like that sector a lot, it obviously provides very long-term, stable, somewhat inflation-hedged returns—but we do see a lot of competition there.
What are the necessary characteristics for a successful OMERS deal?
We’re targeting long-term, stable, cash flow-generative investments that have low volatility. The reason we’re doing that is because what we’re looking for is investments where we can deploy significant capital as well and generate a return that’s commensurate with our targets. We look for certain characteristics…[and they] include, normally, some sort of industry structure or deal structure that reduces the volatility in a business. That can be long-term contracts, it can be a regulated business with a regulated concession in an area, or it can be a market structure that has limited competition in certain areas, etc., or it can be significant barriers to entry such as large capital intensity.
A good example is a regulated utility. You’re not going to have two electric power utilities in the city of New York competing with each other by building their own lines. It just wouldn’t be efficient. So, the utility commission regulates it so that there’s a quasi-monopoly, and then because it’s a quasi-monopoly they regulate the pricing to protect consumers.
How is it different working in a public pension’s direct investment program as opposed to traditional private equity?
We have a long-term investment focus. It enables us to invest through cycles and across cycles and we’re not put in a situation where we’re trying to time the market or we might have fund duration or fund termination issues that drive us to have to make business decisions about when we might exit a position. And that’s a great advantage for us as we’re looking at opportunities, and as we make business decisions about buy versus sell or hold versus sell.
How much does OMERS’ nature as a public entity enter your thinking as you explore deals?
I don’t think being a public entity drives the difference. We have to make commercial investment decisions and the commercial investment decisions we’re making are very, very similar [to private equity firms]. I come back to the alignment with our 500,000 members. We are focused on providing them stable, solid, secure returns. There’s a level of responsibility that comes with that alignment.
Edited for length and clarity by Justin Mitchell.