A cap on both fund manager fees and investor returns is the key to overcoming state government caution on infrastructure deals, according to Garry Weaven of Industry Funds Management (IFM).
Speaking to investors at an Australian Institute of Superannuation Trustees event in Sydney, Weaven outlined a proposal in which a fund manager, such as IFM, is hired by a state government on a fixed fee to attract super funds to invest in a single infrastructure deal. The fund manager would also act as the long-term project manager.
For greenfield projects, investors could be attracted by the promise of a minimum return, but returns would also be capped to ensure assets are not sold off too cheaply.
Such equitable deals, according to Weaven, are more likely to appeal to long-term owners whose interests were aligned with state governments, but are also more likely to be politically acceptable.
“The decision around future ownership of infrastructure assets (whether greenfield projects or privatisations) should pay regard to who the appropriate long-term owners of the asset are,” he said. “Who will be there for the long term to ensure appropriate maintenance and capital expenditure if it is not to be the government itself?”
Weaven used the presentation to vent his frustration at the slow pace of government in accepting such overtures. He said there was enough pent-up demand to quadruple the amount of infrastructure investment currently undertaken and he reasoned that the deals should be presented as a being a win for the community.
“The secret is to start with the social good of the new investment. Governments can say we are going to use [the money received] for other projects of social good. It’s not for some Mickey Mouse electoral gain.”
He added that three-year electoral cycles did not encourage long-term projects, particularly as the sale of state assets were often viewed negatively by the public and the media.
“The adversarial political system makes it very difficult for politicians and senior bureaucrats to take on hard decisions regarding long-term infrastructure projects, which by their nature are almost certain to be controversial. We cannot even get bipartisan support on superannuation policy itself in spite of world acknowledgement of the great asset we have created.”
Weaven also revealed that IFM was looking at ways of encouraging self-managed super funds to invest in pooled infrastructure funds.