Aussie super funds want changes to unlock infra funds

IFM's owners could invest an extra A$15bn in Australian infrastructure, but the government must first amend its investment system.

Australia’s Industry Super Network (ISN), an umbrella organisation for 35 industry superannuation funds, estimates that the funds in its network, which also own Industry Funds Management (IFM), are prepared to invest an extra A$15 billion (€11 billion; $14 billion) in the country’s infrastructure over the next five years, according to a statement.

If certain changes are implemented in Australia’s infrastructure investment system, the total contribution from the 'Land Down Under’s' A$1.6 trillion superannuation funds industry could reach up to A$100 billion over the same time period – but that will be dependent on the Australian government’s implementation, the statement added.

On the back of its estimate, ISN has put forward some proposals to the Australian central and state governments about how to structure infrastructure projects to make them more attractive to long-term investors like super funds. 

The proposals focus on improving liquidity management for funds, lowering bid costs and procurement time, developing new financing models more appropriate for long-term investors, and providing a visible pipeline of projects, among others. 

“There is an ongoing debate on how best to allow super funds to invest more in infrastructure,” David Whiteley, chief executive of ISN, told Infrastructure Investor.

The super funds in ISN have been investing in domestic infrastructure for 20 years across roads, airports, energy generation and more. Most recently, the funds completed a $5 billion acquisition of Port Botany and Port Kembla through IFM and in cooperation with foreign pensions, Whiteley added.

With Australia’s infrastructure deficit estimated at $770 billion as of now, ISN believes it will be critical for governments and super funds to work together.

Whiteley explained that in Australia there has been some controversy surrounding the generally favoured public-private partnership model for incentivising more short-term investment rather than rewarding long-term commitment. For example, many pensions and banks that previously invested in infrastructure were compensated up front.

“It simply wasn’t in line with the long-term interests of infrastructure,” Whiteley said. “You have to establish that this investor will manage this asset for decades.” As a contrasting example, the super funds in ISN have bought a 99-year lease on Port Botany.

Returns are not impossible for longer-term investors in Australia, Whiteley insists. While he admits that Australia is a large country with not all that many people, IFM has been able to average a 12 percent annual return on its investments.

As a next step towards increasing such investments, ISN expects to be spending a lot of time with Australian governments over the next year discussing its proposals and ways to restructure bids to favour longer-term investors. But the organisation is prepared for a slow shift in mindset.

“This proposal will not transform the way deals are structured overnight,” Whiteley said.