For example, a  $1 billion toll road may have  60 per cent debt and d$400  million in equity – that’s a  large amount of money in one  investment.  “The parties putting these  investments together don’t  want 20 investors, which  means that two or three investors  have to put in hundreds of  millions each.”  UniSuper’s Gautam Rajamani,  head of private markets,  confirms that it’s a big-end of  town game. He’s disarmingly  frank about the $50 million  bath that the fund took on its  infrastructure investments in  NextGen fibre optic cabling,  and Loy Yang Power.  “It walked like a duck, it  talked like a duck, but it wasn’t  a duck,” says Rajamani. “Both  looked like infrastructure, but  they weren’t.”

The lessons that UniSuper  learnt, says Rajamani, are  that it’s best to own an asset  directly; to ensure that the Federal  or State Government is a  main partner; and to have scale  because large players can afford  to have their own in-house  team, and their own in-house  lawyers.  UniSuper is one of  Australia’s top 10 super funds  [depending on how the figures  are tumbled], has more than  442,000 members, and has $27  billion under management. Just  on 7 per cent is in alternatives,  and of that, 60 per cent is in  infrastructure, so the fund  has $1.5 billion is invested in  infrastructure such as Adelaide  and Brisbane airports, Sydney’s  Eastern Distributor, and Victoria’s  desalination project.  For Rajamani, the dealbreaker  in any project touted as  infrastructure is the presence  or absence of Government. He  warns against infrastructurelike  investments which have  a different risk and therefore  different returns.

For example,  UniSuper’s involvement with  the Victorian Government’s  desalination project is a different  risk from UniSuper doing,  hypothetically, desalination  for a company even the size  of BHP Billiton – precisely  because of the lack of government  involvement.  Nick Rowe, investment  banking head at Royal Bank  of Scotland, concurs with  Rajamani’s duck analogy. For  example, he says, a Greenfield  tollroad-tunnel project based  on traffic studies of patronage  “looks like a secure piece of  paper akin to a government  bond, but in reality it’s highly  dependent on the actual volume  outcome”.  “If you got those studies  wrong – which is what’s  happened a few times — you  ended up with a wrong-sized  tunnel that’s too big and too  expensive and with too much  debt. This was compounded  by the fact that debt was cheap  and you could get tax breaks,  encouraging high debt and  limited equity, therefore driving  forecast returns up.