Super funds that have internal teams are better positioned to access infrastructure deals across the spectrum, including greenfield projects, which up until now have been less accessible for investors.
In a speech given to the Master Builders Australia National Leaders Summit at Parliament House, Cbus’ chief investment officer Kristian Fok, said the fund’s internal expertise brings it closer to the market to better access deals.
“Our capacity also enables us to participate directly at more stages, eliminating additional financiers and the increased costs associated with them,” he said. “And with internal team costs largely fixed, once teams are established, our costs will become even more competitive, compared with management fees which would otherwise keep growing as a percentage of funds under management.”
In his speech Fok put the industry on notice, claiming there were additional costs imposed on super members when infrastructure deals are made, and this needed to be addressed. Bringing assets inhouse could help reduce these costs.
He said rising government spending on Australian infrastructure, which is partly driven by super fund investment, should see funds place greater focus on internal expertise.
He explained that as many funds are already significantly allocated to the infrastructure sector, internal expertise can help them create more direct investments, procure greenfield land, and reduce payments to intermediaries, which he said add little value. Savings in these areas could ultimately improve member returns.
The connection between super fund and infrastructure projects is only likely to grow and Fok expects as much as $260 billion to flow from the super industry into the infrastructure sector by 2025. This will add to the investment appetite for infrastructure deals and Fok said this could have funds rethink their approach to infrastructure, potentially increasing the assets managed internally.
“We invest in infrastructure and property because, from an investment perspective, it has been one of the outstanding success stories of the Australian economy, and also because it is where our members work and employers contribute,” Fok said. “We want to support them and create a virtuous circle with our investments.
“When superannuation fund balances were smaller, investment in greenfield projects was not realistic from a capabilities and cost perspective. [But] with the growth of funds under management, many super funds are now building internal teams and expertise that means greenfield projects are a real consideration.
“We are continuing to transition Cbus to a hybrid model where our internal capabilities work alongside our existing externally managed funds.”
Cbus has 10 per cent of its funds under management invested in infrastructure.