Home' Future Building: The Australian Infrastructure Review : July 2011 Contents Super funds and infrastructure; ideal bedfellows
funds generally, behind only the United States,
Luxembourg and France. And it enjoys access to the
fifth-largest pool of super funds, with Rice Warner
estimating that the total pool of savings within the
Australian superannuation market will reach $3.2
trillion by 2022. Allianz forecasts that Australia’s
superannuation will remain the largest pension
market in Asia for several years.
If Australia is to bridge the gap between current
infrastructure investment and anticipated demand,
super funds will need specific encouragement and
opportunities to invest in the infrastructure sector.
Policy makers will assist with ‘big picture’
changes that allow the superannuation sector to
better match its investment strategies to life cycles
by encouraging superannuation beneficiaries
to focus on longevity risks. There is currently an
almost exclusive publc focus on accumulation,
with little emphasis on the post-retirement phase,
when a conservative preservation strategy would be
Encouraging a shift toward annuity products
becomes a key objective. Funds that offer annuity
products will naturally look for the long-term, stable
investments that infrastructure can provide. A shift
toward annuities would be positive for retirees,
because it would help to manage longevity risk and
would help match super and infrastructure in a way
that Australia has not managed in the past. At present
there are very few long-term or lifetime annuity
products available for retirees.
Another area requiring focus is the sheer number
of small superannuation funds. Experience suggests
that some smaller funds have neither the investment
flexibility nor scale to successfully undertake new
infrastructure transactions; others lack the required
skills in terms of specialist investment managers to
properly broaden their investment allocations.
Rice Warner estimates that the number of large
(non-APRA) funds has decreased from around 800 to
500 in the past three years, with the trend to continue
to 2013. Continued consolidation will allow super
funds to invest in larger projects, reduce fees and
charges to superannuants, and facilitate diversified
direct investment portfolios.
For infrastructure to be an active investment class
for institutional investors, sufficient skills are required
to understand how to align investment and revenue
profiles. Superannuation funds need to make a firm
commitment to the sector and invest in the in-house
expertise needed to properly access the potential
that already exists in infrastructure investments.
Of course, direct government support is also
crucial. A recent report from the Royal Bank of
Scotland estimated that infrastructure spending
commitments from governments are ‘flatlining’,
with figures showing they declined by around 17
per cent in 2010/11 compared to the previous year.
While the fall can, in part, be explained by the
planned cessation of stimulus measures in response
to the global financial crisis, it’s critical that there is
The onus also falls on governments to deliver
a long-term and transparent pipeline of investment
opportunities in infrastructure projects. Super funds
need to be able to see greenfield projects on the
horizon if they are to commit to major projects.
Likewise, the funds need to have an expectation
of lower transaction costs, otherwise large projects
(including PPPs) will be less keenly bid than they
The flow-on effects of change could be
significant. A greater investment by Australian
super funds would likely spur international pension
and sovereign wealth funds to also invest more in
Australian infrastructure assets.
There is a sound investment case, but the low
allocation shown by many Australian funds proves
there is room for improvement.
Australia’s population is expected to reach
around 37 million by 2050. The ageing population,
coupled with the demands that arise from economic
growth, will cause further strain on the country’s
public transport, roads, freight and utilities.
New projects and services can be made available
to meet these growth requirements, provided
government and industry achieve targeted reforms
that foster prudent levels of private investment –
including from superannuation.
Volume 2 Number 1
Superannuation funds need
to make a firm commitment
to the sector and invest in the
in-house expertise needed to
properly access the potential that
already exists in infrastructure
1 Bligh Street in Sydney
is one of superannuation
company Cbus’ major
property investments, and is
due for completion in 2011.
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