First State Super to double infra allocation

The Australian superfund will be more flexible as it looks to increase its exposure to infrastructure assets from 3 percent currently.

Outgoing First State Super chief executive Michael Dwyer has indicated that the Australian superfund is looking to double its strategic allocation to infrastructure in the coming years.

Speaking to Infrastructure Investor after announcing his retirement later this year, Dwyer said infrastructure assets were “very attractive” to the superfund.

“We have about 3 percent of our portfolio allocated to infrastructure at this stage. Our aim is in a few years’ time to get to a 5-6 percent allocation. The reason we haven’t got there even sooner is because of active portfolio rotation – in the last few years we’ve bought A$2 billion-worth ($1.51 billion; €1.29 billion), but we’ve sold A$2 billion-worth as well,” he said.

First State Super’s social infrastructure assets include Bendigo Hospital in Victoria, Sunshine Coast University Hospital in Queensland, and the International Convention Centre Sydney. It made these investments in June 2016 for a combined outlay of approximately A$368 million.

It also successfully bid A$2.6 billion in partnership with Hastings Fund Management to win the lease for New South Wales’ land registry in April 2017, in the first such privatisation of a state’s land registry in Australia. First State Super is also rumoured to be weighing up a bid for Victoria’s land registry – the next one on the block following the privatisation of South Australia’s in August 2017.

Dwyer said First State Super, in line with other investors, is considering assets beyond the traditional definition of infrastructure due to a need for flexibility.

“In recent years, we have been looking at [assets such as] data centres, rolling stock, mobile phone towers, petrol stations, which traditionally sit outside the definition of infrastructure, but they all give stable returns. We’ve been looking at crematoriums, too, believe it or not. We need to be flexible. We consider opportunities that are complex and sometimes are outside that traditional definition, and are sometimes higher risk, but provided we do our due diligence we think that’s where the better risk-adjusted returns are for our members.”

Dwyer added that First State Super’s target for its infrastructure portfolio is “CPI plus 6 percent net after fees and charges” and that it looks for vehicles with long-dated cash flows, or inflation-adjusted cashflows.

“This year looks like a very positive year for infrastructure in our portfolio, and that’s partly because we’ve been realising some assets and getting some good returns,” he said.
Dwyer will retire as chief executive in November this year after 14 years in the role. He will be replaced by Deanne Stewart, currently chief executive of MetLife’s Australia business.

You can hear direct from First State Super about its infrastructure strategy at the Melbourne Summit on 19 June. Click to learn more.