Australian Pensions to Invest in Foreign Infrastructure Assets

A lack of suitable Australian infrastructure for sale is encouraging the country’s pension funds to invest in foreign assets, including in China and Europe, according to an association representing the funds.

“The returns from many pieces, from brownfield Australian infrastructure, are poor and they are lumpy,” Association of Superannuation Funds of Australia Chief Executive Pauline Vamos said in an interview in Sydney on April 15, referring to infrastructure already in operation. The funds are instead looking at assets with steady returns and will continue to invest in “China, Poland, Europe, the U.K., everywhere.”

Australia’s retirement savings system is the fourth-largest pool of funds under management globally. Funds totaled A$1.51 trillion ($1.5 trillion) in the fourth quarter of 2012, the Australian Prudential Regulatory Authority said in February. The Business Council of Australia said in June that federal and state governments should sell existing public infrastructure assets to help fund new investment.

The New South Wales state government’s lease last week of two ports was “the first investable thing for two years,” said Vamos, who heads the association that represents about 90 percent of Australians with superannuation. There is no pipeline of domestic infrastructure assets, she added.

A group including Industry Funds Management, five Australian superannuation funds and a unit of Abu Dhabi Investment Authority said they would pay A$5.07 billion for 99-year leases of Port Botany and Port Kembla.

Foreign Infrastructure

The funds are keen to invest in domestic infrastructure, including electricity transmission assets, even as “state governments are terrified of selling these sorts of assets because they’re worried about the public backlash,” she said.

“A lot of funds will say it is a lot easier to invest in foreign infrastructure than Australian infrastructure,” said Alex Dunnin, director of research at financial services information company the Rainmaker Group.

Some of the funds are investing in Asian infrastructure or European infrastructure because of lack of opportunities at home, he said.

AMP Capital Investors Ltd., the Sydney-based company managing about $130 billion in funds, said in February it had invested $100 million in North American wind energy developer Capistrano Wing Partners LLC and planned more power investments in the U.S.

Infrastructure Australia, a federal government body, in October said it had identified more than A$100 billion of commercial infrastructure owned by Australian governments, for which the costs of operation and maintenance outweighed the benefits to the community of retaining ownership.

Toll Roads

Several toll-road projects initiated by state governments had proved to be poor investments because the country doesn’t have a large enough population to generate the necessary traffic, Vamos said.

“Our average toll roads have a peak period of three hours a day, but you invest in China, you invest in Europe, they are busy 24 hours a day; that’s where we invest, that’s where we build roads,” she said.

BrisConnections Unit Trust, which was awarded a 45-year concession to construct and maintain a toll road linked to Brisbane Airport, appointed outside managers in February after lenders failed to support a restructuring of the business due to lower-than-expected toll road revenue.

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