In his office on level 29 at Casselden Place in Melbourne, Weaven thumbs through a recent report from Infrastructure Australia, a federal government unit with which he is involved as an advisory council member. The report lists slated rail and road projects to be undertaken by state governments with federal funding. It seems that one project only, the Gold Coast rapid transit rail line, will seek private capital, he says. State governments usually release just one or two PPPs each year, says Suzanne Findlay, investment manager – unlisted markets at AustralianSuper, and rarely in an election year. The $33 billion fund, one of the industry’s giants, has not directly bid for a role in any PPP. It delegates these tasks to IFM, which has the internal expertise and experience to participate in bids. This year it asked the manager to investigate the range of greenfield opportunities brought to the market by state governments.
AustralianSuper is not categorically averse to these projects. But an equity stake in such a project must be at least $100 million to justify the expense and commitment of resources to the bidding process. IFM reported back to its client that there are currently not enough opportunities of sufficient size. Many new infrastructure developments require more debt than equity, and when the Wonthaggi desalination plant project offered attractive returns from debt, the fund saw this as a good deal. Industry funds such as AustralianSuper, which allocates 13 per cent of its assets to infrastructure in its balanced option, are among the largest institutional investors in the sector, alongside AMP Capital Investors (AMP CI), the Future Fund, Queensland Investment Corporation and the Victorian Funds Management Corporation (VFMC). They already manage portfolios of long-term infrastructure assets, making their capacity to massively increase this exposure to help meet the projected funding shortfall constrained.
The small size of social infrastructure projects, such as schools, also makes bidding for these assets uneconomical, says Paul Frost, head of infrastructure – Australia and New Zealand at AMP Capital Investors. For the manager’s $80 million Community Infrastructure Fund, it seeks deals on the secondary market because the smaller size of greenfield social infrastructure assets do not justify the expenses of PPP bids. “The costs and expenses of the process are a barrier to getting super fund capital into projects. If the government is going to shortlist two parties, it should compensate the unsuccessful party for their time and effort in putting a bid on the table,” Frost says. To ensure future private investment, state governments must take on more of the risks of greenfield projects themselves. “What governments are beginning to realise, as proponents of infrastructure development, is that capital is global in nature,” Frost says.