Superannuation outlook

The rapid net asset growth of Australia’s industry superannuation funds means they will need to invest around $150 billion over the next five years, of which up to $15 billion could be made available for infrastructure investment, according to the executive chair of Industry Fund Services, Garry Weaven.

Weaven last month told a Committee for the Economic Development of Australia lunch in Melbourne that while there was no shortage of retail or wholesale investor support for listed infrastructure investments, there was a high degree of concentration in the Australian market.

“So unless super funds want to spend their time buying and selling BHP shares to each other, they are going to have to access new investment either in new Australian assets or go much more heavily offshore,” he said.

“The major industry super funds have been averaging in excess of 20 per cent per annum net asset growth over recent years,” Weaven said. “At that rate, industry superannuation funds alone will need to invest approximately $150 billion over the next five years.

“That could mean an additional $15 billion available for infrastructure without considering public sector funds or retail trusts,” he said.

Weaven said Industry Funds Management had a long-term commitment to infrastructure - something which had existed well before it had become fashionable.

“The investment track record has been outstanding,” he said. “The IFM Australian Infrastructure Fund returned 24.5 per cent after tax and fees for the last financial year and 15.01 per cent a year since inception in 1995. So there is plenty of appetite from industry super funds for infrastructure investments.

“I should stress that these investment returns should not be taken to mean that we would have unrealistically high hurdle rates for new investment,” Weaven said. “We fully recognise that those sorts of absolute returns should not be sustainable in a low inflation environment.”

He said that the reality which had confronted IFS is that its portfolio asset allocation to infrastructure had been constrained not by willingness to invest but by deal flow, and that this had resulted in a significant increase in focus of Australian funds offshore.

Weaven said that funding was not a problem and nor was there any problem flowing from the debate about public versus private funding and ownership.

He said that the Government needed to stop creating debating forums and committees and, instead, champion more projects and creating appropriate policy settings.

“Governments must provide the political leadership to cut through the multi-level, multi-authority patchwork of public policy governance to actually drive major project outcomes,” Weaven said.

He said Australia had created a world-leading system of savings and wealth creation to finance the retirement needs of future generations, as well as a healthy rate of economic growth and a sound public sector balance sheet.

“An ideal opportunity now exists to ramp up the level of infrastructure project roll-out to simultaneously expand and modernise infrastructure to enhance national productivity, while also ensuring that we use technology to put our infrastructure on a sustainable basis for the future,” Weaven said.