“I’m empathetic to the money problem, especially in a low-return environment, where people eye improved returns by cutting costs in the middle. But let’s not save a dollar to miss out on two or three,” warns Brett Himbury, chief executive of Australia’s Industry Funds Management (IFM).
The warning, issued in an exclusive interview with Infrastructure Investor, is directed at pension funds flirting with the idea of investing directly in infrastructure – a growing trend, in Himbury’s eyes.
“Infrastructure is a long-term investment and anything can happen over a 50-year investment. So if you are going to do it yourself, be really prepared to assess the risks that might happen over that 50-year period and be prepared to buy well, but also to manage,” Himbury said.
“Doing it yourself, you might be paying 80 percent of what you would otherwise pay, but you are not getting 12 percent returns, you’re getting 9 percent. You have to be careful that you’re not saving 20 points to give up 300 points, because that is the order of magnitude we are talking about in IFM’s case, where we are already at the sharp end of the [returns] equation,” the IFM head added.
Himbury concluded: “You [pension funds] need to have a large-scale, high-quality, long-term commitment to the asset class for it to be successful. So make sure you have that commitment and resource [if you’re investing directly].”
IFM is owned by 32 Australian superannuation funds and has been investing in infrastructure for the last 18 years. It currently has some A$11 billion (€8.9 billion; $11.2 billion) invested in infrastructure.
*To read the full interview with Brett Himbury, be sure to check the September 2012 issue of Infrastructure Investor magazine.