Superannuation funds can’t win when it comes to investment in infrastructure, according to a leading investments researcher.
On Tuesday, Treasurer Josh Frydenberg said he wanted funds to invest more heavily into nation-building projects.
In April, he took a thinly veiled swipe at them for doing just that.
In an interview with AFR Weekend just weeks after announcing the early super access scheme, Mr Frydenberg sought to play down suggestions that early withdrawals could cause liquidity problems for some funds.
But he said any problems that occurred would be the fault of individual funds, not the government.
Fund trustees should have “managed their legal obligations responsibly over the years to ensure that they have appropriate liquidity to deal with market volatility and other demands on the fund driven by membership changes or payments,” Mr Frydenberg said.
Chant West head of research Ian Fryer said it sounded as though Mr Frydenberg was telling funds “you shouldn’t have too much in infrastructure”.
“There seems to be mixed messages coming from the government,” Mr Fryer told The New Daily.
Super funds are also “more cautious on long-term infrastructure investment” following the introduction of the early super access scheme, Mr Fryer said.
The policy has forced super funds to hold more cash and invest less in long-term projects.
And although the government has billed the scheme as a one-off, “there have been voices [from government members] saying it should be available whenever people become unemployed,” Mr Fryer said.
Meanwhile, AMP Capital chief economist Shane Oliver said “the main issue for super funds investing more in infrastructure is the absence of opportunities”.
Some funds got burnt in a rush of “public-private partnership opportunities in the 2000s like the Cross City Tunnel and the Lane Cove Tunnel in Sydney,” Dr Oliver said.
“So that [style of investing] went out of favour, but super funds are still keen to get into infrastructure.”
Helping super funds invest in infrastructure
Dr Oliver said reviving former treasurer Joe Hockey’s asset recycling method would be the best way to connect superannuation money to infrastructure projects.
Asset recycling is when governments lease existing infrastructure assets to private companies and reinvest the proceeds in new projects.
In a bid to get more projects up and running, Mr Hockey introduced a policy whereby federal government paid state governments an additional 15 per cent of the capital recycled from existing assets and reinvested in new infrastructure.
“NSW sold off its electricity poles and wires [for a total of $23 billion] and can now use the proceeds for road and rail projects,” Dr Oliver said, by way of example.
“NSW still has a big investment pool from that.”
Those funds would need to be rolled over into new projects to boost super fund infrastructure investment, Dr Oliver said.
Stable policy settings are crucial
Industry Super Australia CEO Bernie Dean said the sector was prepared to put more money into infrastructure if the conditions were right.
“We’re already big investors in Australia, but there’s more we can do to help pull Australia’s economy out of this downturn, while helping get members’ savings growing again,” Mr Dean said.
“As a start, funds have earmarked $28 billion for infrastructure projects, and to support Australian businesses in the next few years, these investments [will] create much-needed jobs and generate economic growth.
“With stable policy settings in super, our trustees will be able to continue investing for the long term in assets that generate good returns for members.
“[But] without policy certainty, fund trustees’ investment horizons become shorter and it is more difficult to make commitments to long-term holdings, like local infrastructure”.
Asset recycling isn’t the only game in town
The retail super fund sector recently called for the creation of a new umbrella investment vehicle that would allow retail and self-managed super funds to access large infrastructure projects.
“The traditional model – the sale of assets to a small number of large players – is successful, but fails to utilise the total pool of retirement savings, particularly from self-managed super funds, and choice investments, which collectively manage $1.7 trillion,” said Financial Services Council CEO Sally Loane.
The FSC’s umbrella model would allow retail funds and SMSFs to buy a stake in a large-asset portfolio that includes big infrastructure assets.
Meanwhile, former federal Liberal leader Dr John Hewson said infrastructure investment could be facilitated by the federal government introducing a 30-to-50-year government-guaranteed infrastructure bond.
“Introducing a long-term infrastructure bond with a government guaranteed coupon would be an attractive fixed-income investment for Australian super funds who collectively hold almost $3 trillion in capital, as well as many large overseas investors,” said Dr Hewson, also a director of Islamic investment group Crescent Wealth.
Umbrella group IFM Investors, which is itching to pour billions into local infrastructure projects, provides that service for the industry sector with $156 billion under management.
A spokesman for IFM Investors said the group favoured a model for new infrastructure projects where the government dealt directly with large investors and cut out the range of advisers and investment bankers that help put deals together.
That would make it easier to bring projects to fruition, IFM said.
The New Daily is owned by Industry Super Holdings