It’s a shortage of projects, not capital, that’s impairing Australian infrastructure, according to AustralianSuper chair Heather Ridout. Speaking at the Australian Centre for Financial Studies’ Funding Australia’s Future Forum, she said industry superannuation funds are best placed to invest in Australia’s infrastructure.
“Industry funds are ideal vehicles because we have a relatively more passive investor kind of population. AustralianSuper has about 12 per cent [infrastructure]. We are open for business,” she said.
AustralianSuper recently acquired a share in NSW Ports as part of an Industry Funds Management deal, also taking 20 per cent in its own right.
“We think this is another model, given the scale of this fund, that will end up being rolled out much more in the future, and it’s quite exciting for us,” Ridout told delegates. “We won the Port Botany deal by a very narrow margin. But it’s not the issue of capital being available; it’s the issue of a pipeline of suitable projects for us.”
Ridout acknowledged self-managed super funds as a big sector, but said they don’t invest much in infrastructure because they can’t invest easily in unlisted vehicles.
Meanwhile, she said retail funds are also not major infrastructure investors due to a lack of mobility between their investment vehicles and the providers.
In praise of the state
She praised the model in New South Wales, where the state government makes available an asset and uses the returns on it to reinvest in infrastructure.
“If it means that governments have to run a different battle sheet, go to a bit of debt on a revolving basis, it’s not that frightening, it’s not really that scary, and I do think we need to open our minds to it. I think we need leadership at the state government level, because states are really very much a part around this, but also at the federal level. And I also agree that organisations like Infrastructure Australia have a huge role to play in this and haven’t been up-close and personal with that since it started.”
Ridout said Infrastructure Australia has made “a very major contribution in getting a much more objective framework for developing a pipeline of productivity-enhancing infrastructure”. She also acknowledged government’s hand in not mandating a percentage of funds under management going into infrastructure.
“It’s sensible and, as I said, it’s not a shortage of funds, it’s the shortage of projects.”
The comments followed a discussion of AustralianSuper’s growth, with Ridout explaining its management process.
“We have $65 billion under management. Just a few years ago it was $40 billion, and in a few more years it’ll be $100 billion under management,” she said, adding that the fund has a number of approaches for internalising much of its investment function.
“In a few years, by 2015, about a third of it will be, and that will save us $200 million every year in investment management costs. It’s huge. And this is a very, very big project.
“Part of that is the recruitment of the right people, finding the right talent. It’s been a very big issue and some of them have come from overseas, not from local industry.”
Part of managing growth, she added, are the regulatory burdens imposed on funds, noting the effort to create more uniformity between the regulation of super funds, banks and insurance companies.
“It’s good as far as it goes, but of course super funds don’t make any lines, we don’t exercise any leverage, we have a risk reserve to cover operational risk, and that’s mandated at 25 basis points, that’s done,” she said
“But in terms of the ongoing need to hold capital, I think that’s an issue that, given the way that we operate, that could be something we would have had whiskers on it. So I think that’s something that we do need to think about.”