Fiscally challenged Australian governments wishing to maintain credit ratings and increase their cost of capital should consider the untapped resource of superannuation funds, said industry funds offering up to $15 billion for investment over 15 years.
A range of government-owned infrastructure assets could be monetised to industry funds, argues a new paper released by Industry Super Network (ISN) and Industry Funds Management (IFM) last week in the federal parliament.
Chief executive of IFM, Brett Himbury, says state governments will benefit financially from selling assets to super funds, allowing them to reinvest the funds in new hospitals, roads and other essential infrastructure.
“This is sort of a revitalised approach to try and match up the needs of the community to have more and better quality infrastructure with the suggestion that’s often put: why isn’t superannuation and that large pool of capital, the $1.5 trillion, investing more in infrastructure?” Himbury told Investment Magazine online.
Industry funds have an enormous amount of capital to invest, Himbury said, and that members of industry funds want access to a stable income stream.
He acknowledged some reluctance to privatise existing assets due to community concerns, saying it was understandable given global instances where private owners have not acted appropriately.
“The primary element that’s probably stood in the way is state governments getting comfortable with privatising these assets and being comfortable that their constituents, that is, the community, are comfortable with privatisation.”
Clearing the infrastructure bottleneck
Chair of ISN, Steve Bracks, said the paper, Building Australia: Super investment initiative, was “a call to arms” from industry funds that have the money, capacity and appetite to fund infrastructure projects.
“We’re urging state and federal governments to come up with a pipeline of projects which we can invest in. Transferring, if you like, the ownership of some assets, which they could do, and then use that money to reinvest in new greenfield assets.”
“We can be a part of that solution for the infrastructure bottleneck in Australia and we have the capacity to do it.”
Bracks said the majority of investments would be at a state level.
“I think there’s going to be a realisation this is probably the only way that they’ll be able to fund new projects in the future, given the cash-constrained nature of governments with reducing revenue bases and the higher expenditure that they have to have on education and health and public safety.”
Himbury commended the New South Wales government’s recent privatisation of the ports of Kembla and Botany, a tender that was won by a consortium of industry funds.
“What they’ve done there is a marquee example of what we would encourage governments in this country, and also governments around the world, to do more of,” he said. In a paper released last year, Infrastructure Australia identified $200 billion of assets currently owned by state governments.
“The state government of NSW privatised Botany and Kembla for $5.07 billion, but there is nothing among the rest of the $200 billion that Infrastructure Australia earmarked. There is nothing else that is currently being actively put up for privatisation. That’s the challenge.”
IFM is Australia’s largest infrastructure manager, and has around $46 billion in funds under management, with half of its infrastructure investment portfolio in overseas assets.