Deal-making infrastructure needs work itself Investment needs deals, and a crucial factor as the Australian infrastructure sector competes for super fund capital is deal flow: deals can help provide an investment case, and a sound answer to those who might say that grand nation-building schemes do not belong under superannuation’s sole purpose test. But unlocking those deals requires better co-ordination from all levels of government, as SIMON MUMME reports.
“As a sweeping statement, there is a strong case for the exchange of retirement savings to build needed infrastructure,” Greg Roder, AMP Capital Investors head of infrastructure, says. “In terms of what’s practical and what’s idealistic, it’s somewhere between the two.” The ideal characteristics of infrastructure investments – steady earnings flows throughout long investment cycles with low correlations to equities markets – can, if successful, underpin and further diversify portfolios built for the long-haul.
Without deal flow, Australia’s growing pool of superannuation will simply continue to be invested offshore. There are plenty of managers doing good business out of this trend. RREEF Infrastructure, for instance, emphasises emerging infractructure opportunities in China and India, and describes Australasia – given it accounted for 30 per cent of all closed deals in the Asia-Pacific across 2005-2007 – as mature, “richly valued” and over-competed, according to RREEF’s co-head in the region, John Dorrian. “Take electricity distribution in Victoria for example. They’re coming up to their third or fourth owner on some of those assets,” Dorrian says. Lower-yielding it might be, but RREEF research head Peter Hobbs admits the Australian market can provide investors with a regulatory certainty that’s still developing in more emerging markets, particularly in China – where investors essentially have to apply to the Government to be able to liquidate and repatriate their invested capital.
Enduring infrastructure needs, such as freeways, port expansions, sustainable water plants and hospitals, illustrate an investment shortfall in infrastructure that exceeds $90 billion, Mark Birrell, chairman of Infrastructure Partnerships Australia, the national peak body for infrastructure, says. Providing this development capital is well beyond the capacity of Australia’s governments alone. Public-private partnerships (PPPs) are one financing option that governments can use to combat this deficit. Infrastructure Australia, a national co-ordinating body for infrastructure set up by the Federal Government in January, will encourage funding from the private sector to contribute to projects ranked as current and future priorities, Birrell says. These projects will be identified in an audit of Australian infrastructure due at the end of the calendar year.