HOSTPLUS will never divest from infrastructure

HOSTPLUS will never divest from infrastructure, despite record valuations, because of the cash flow it brings into the fund coupled with the rarity of obtaining the asset.

At a time of high valuations in the asset class, research by some organisations such as Frontier Advisors, has suggested the selling of infrastructure might be a good tactical move by super funds.

However, Sam Sicilia, chief investment officer of HOSTPLUS, says even if valuations break the strategic asset allocation (SAA) it still will not divest.

“Market movements take you away from the desired SAA. Rebalancing strategies were designed when SAA was largely between cash, bonds and listed equities.  However, rebalancing strategies are ineffective with higher allocations to unlisted assets, like property, infrastructure and private equity,” he said.

For example the percentage of the portfolio allocated to infrastructure could jump from 10 per cent to 12 per cent if there was a loss in another class, such as equity markets dropping by 20 per cent.

In such a circumstance he felt it would be ridiculous to sell infrastructure assets just to bring the allocation back down to 10 per cent.

“Forget the 10 per cent, therefore forget the 12 per cent. If a good deal comes along do the deal, we’ll worry about the listed markets later,” he said.

One such potential deal is the Port of Melbourne which Sicilia describes as a once in a life-time opportunity. The concession will run for 99 years which would make waiting for a better buying environment next year pointless.

“You buy it now. You bid for it now on 50 year metrics, which doesn’t really matter what the world is doing today, none of that really matters,” he said.

“What really matters is the cash flow you get, if you can model that. How many ships are arriving, what’s the price per container, what’s inflation likely to be over the next one, three, five, ten, fifteen years.”

“The Port of Melbourne ain’t coming back to the market. Once assets are in super funds hands and pension fund hands around the world they never go back into the market. We don’t divest from any infrastructure assets.

“It might be 300 years from now but eventually super funds and pension funds will own the planet.”

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