There is no doubt, Clarke says, that many of the promoters of infrastructure funds in the past were thinking shortterm returns, for themselves, rather than long-term returns for their clients. Super funds are more wary now and the opportunities may well be greater. While some fund managers and investment banks are very bullish about the asset class, there are some financialfiasco elephants in the room such as Sydney’s Lane Cove Tunnel [in receivership last month], Melbourne’s Connect- East Motorway and the BrisConnections float. Funds are divided about infrastructure as a prudent investment, with some – such as Industry Funds Management – allocating actively while others – such as FuturePlus – saying it’s overhyped, overpriced, and overly complex. Love it or hate it, infrastructure is the barbecue-stopper when funds’ boards are signing off on allocations. The asset class has moved to centre stage since the Rudd Government’s announcement last April of the A$43 billion National Broadband Network to be funded by Aussie Infrastructure Bonds [AIBs] and the Building Australia Fund.
In fact, it’s so important that Australia’s future as a social democracy with full employment depends on super funds’ compulsory investment in infrastructure, says academic Dr Tony Ramsay. And as if this proposal isn’t red-flag enough to have the infrastructure bulls pawing the ground, then there’s Future- Plus’ phlegmatic Michael Block who says the entire asset class is a chimera. Block, who’s the fund’s general manager, investments, says “there is not an asset class called infrastructure. There are only two asset classes in the whole world: fixed-interest and equities.” FuturePlus is, overwhelmingly a defined-benefit fund which, in theory, should make Block more positive about infrastructure because it’s touted as inflation-protected, income-producing, low-correlation, and high-return. In reality, Block is sceptical about infrastructure for defined-contribution funds. “It’s less likely that a definedcontribution fund is appropriate to hold infrastructure because of the way you’re bench-marked on a short-term basis,” he says.
“It’s a very hard question to answer whether infrastructure could ever be put into a defined-contribution fund in its current form,” he suggests. Love it or hate it, the clear message coming out of funds is that it’s a game for the very, very, very big boys only – and even they get it wrong. Each type of infrastructure has a different profile and so is a very complex investment, says Michael Siede, executive director of investment banking, Royal Bank of Scotland. “The most active super funds are those that have the scale, the size, and the sophistication to go into the detail of each investment opportunity,” he says. “Each investment in is the 10s to 100s of millions of dollars, and has low liquidity. They’re very long-term investments with highly complex structures behind them.
