Two of the nation’s largest super funds are split in their attitudes towards investing in overseas infrastructure assets, with Australian Retirement Trust believing there’s an increasing “inevitability” to hunt for deals offshore as its assets under management grow, while UniSuper remains wary of the business “complexities” that might create.
UniSuper currently has $130 billion of AUM while ART is significantly larger with $280 billion. Both funds have so far indicated that they hold different opinions on how to approach big overseas private assets – ART recently opened a London office to chase offshore infrastructure deals, while UniSuper said domestic opportunities are already sufficient.
At a Morningstar investment conference on Wednesday, ART head of investment strategy Andrew Fisher said he would be “lying if I said $280 billion of assets to invest is not a challenging task at times”.
“It is a lot of money, and we’re forecast to grow to $500 billion by the end of the decade,” he said.
“We have to invest a lot of money, and realistically it’s not going to be practical for us to continue to particularly maintain the level of listed market equities allocations that we have.
“Australia was one of the first mover countries in terms of the privatisation of infrastructure assets…there are some really underdeveloped markets offshore, where we’re likely to see opportunity.”
“We certainly will be strongly committed to investing domestically, but it is there is an inevitability with scale that you have to increasingly move offshore.”
Fisher said ART is prudently managing liquidity with more overseas private assets, but since the fund treats infrastructure as “forever assets”, currencies can pose the biggest risk.
“Where it gets quite complex is around currency hedging and your ability to rebalance your currency hedges,” he said.
“The Australian dollar has some fantastic qualities, one of which is the defensiveness of foreign currency – the tendency to fall in a down market.
“The problem with that though, is your currency hedges could get more and more short and are going to be a bigger drain on your liquidity because you’ve got to settle a hedge.
“If you’ve got global equities and they’re hedged, you just sell some of your global equities to settle your hedge; but with infrastructure you’ve got to find liquidity somewhere else.”
For this reason, the fund holds a “sizable” portion of the portfolio in cash.
“We use derivatives, so international equities futures…and use that essentially as a buffer,” he said.
“If we need to open tenders, we can close out futures contracts, and we have the cash available rather than having to go to market because as part of our size and scale, it gets harder and harder to raise the liquidity we need.”
Element of influence
UniSuper head of private assets Sandra Lee acknowledged that the opportunity set in overseas infrastructure can be “vast”, but warned they can also create business complexities.
“Clearly you are then sort of working with a different pool of co-investors and they are generally other large offshore pension funds,” she said.
“You need to understand cross-jurisdictional tax and labour requirements, and it starts making your business a lot more complex.”
UniSuper prefers direct ownership of assets, and Lee said it probably has more of a limited partner profile overseas and a general partner profile locally.
“You’re less of a master of your own destiny [if in a fund investment],” she said, and having a degree of influence is important to UniSuper.
She said a case in point is Sydney Airport which went into private hands in 2022. UniSuper held close to 16 per cent of the airport while it was listed, and rolled its exposure into the unlisted structure.
“When COVID happened…there was some uncertainty in the marketplace and the share price [of Sydney Airport] reacted negatively,” Lee said, pointing out that privately held airports such as Melbourne Airport didn’t suffer the same level of write-down at the time.
Large institutional investors are more comfortable “around navigating through the [long-term] recovery”, she said.
“The governance that [being private] affords us, and that ability to influence, and to influence are really key considerations for Australian superannuation funds around the country.”
