The Prime Minister, Kevin Rudd, says that long-term partnerships between the federal, state and territory governments and the private sector need to be forged, and that the Federal Government should steer the agenda for infrastructure development. “Obviously our major corporations do most of the work – but there is a role for national government coordination when it comes to the provision of key infrastructure around the country,” Rudd says. As an example of such coordination, the impending audit from Infrastructure Australia will provide the private sector, including super funds, with a “forward-looking picture” of the national infrastructure market, including investment opportunities, Birrell says.
Steve Bickerton, head of infrastructure at Challenger Financial Services Group, says there is interest from Australian infrastructure managers in domestic assets, but an increasingly large amount of money is chasing limited opportunities. “We have a national electricity market that is a combination of public and privately-owned assets. It’s not a great position for investors to be in,” Bickerton says. Sydney Water is a good example of the regulatory impasse facing managers: “there would be no shortage of people willing to invest in Sydney Water, and help to end the water problems, but there has been no incentive coming from the government to do anything .”
Comparatively, much of the United Kingdom’s water infrastructure has been run privately for the past decade. The most recent investment made by the Challenger Infrastructure Fund was in Southern Water, a UK company. The fund bought a $690 million, or 27 per cent, stake in the business from the Royal Bank of Scotland in October 2007. The investment accounts for 36 per cent of the Challenger fund’s portfolio. “There are more opportunities offshore,” Bickerton says. “Major infrastructure managers, like Macquarie and Hastings Funds Management, all hold UK water assets.” The regulatory system, demographics and condition of infrastructure in the UK are conducive to a steady flow of deals in that market, Bickerton says. Clear regulation equates to “support from politicians and access to deals” in a country where 65 million people use infrastructure, much of it privately-owned, that is regulated under one framework.
In contrast, Australia’s 21 million people use infrastructure in different regulatory systems determined by states and territories. The UK also has a secondary market for infrastructure investing, in which many closed-end fund holdings are “re-sold and recycled,” AMP Capital’s Roder says. Australia lacks this dimension in its infrastructure market. However, despite the regulatory difficulties, the Australian infrastructure market is not inaccessible: AMP Capital Investors holds roughly two-thirds of its infrastructure assets in Australia, across portfolios that also extend to the US and the UK, Roder says. If super funds were to bankroll the development of new freeways, water plants and port expansions, it would mean the Australian population – that is, the members – would pay to both build and use some of these assets, costs that will hopefully be offset by the investment returns, Challenger’s Bickerton says.