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Australia's Top-Performing Pension Fund Eyes More Infrastructure

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  • Host-Plus returned 9.5% over three years, helped by airports
  • Funds’ infrastructure holdings have doubled over four years

Australia’s top-performing pension fund over the past three years wants to invest in more toll roads and airports, betting infrastructure assets will offer among the most reliable returns over coming decades.

Sam Sicilia, who oversees A$25 billion ($19 billion) of assets at Melbourne-based Host-Plus Pty, is seeking board approval to invest about 12 percent of the fund’s capital in infrastructure, from 10 percent now. Australian funds managing retirement savings now hold A$100 billion in infrastructure assets, double the amount four years ago, data from researcher Rainmaker Group show. And soaring worldwide investor demand has pushed the average size of such deals to a record $519 million, according to Preqin data.

Even still, Sicilia sees potential to acquire more stakes in attractive assets, which he views as offering steady, predictable income for his fund’s almost 1 million members -- most of whom work in hospitality and whose average age is 33. Host-Plus, which has stakes in airports and office buildings to water filtration plants and wind farms, beat its local peers with a 9.5 percent return over the three years ended May 31.

“The pipelines are still healthy with opportunities, and we think that will increase as governments become more accustomed to divesting assets,’’ Sicilia said by phone.

Prices for infrastructure assets reached eye-watering levels as opportunities to invest dwindled. There were 650 sales in the six months ended June 30, from 1,110 a year earlier, Preqin data show. Meantime, other funds managing Australia’s A$2.3 trillion in retirement savings have also been piling in.

Some of the biggest Australian pension investors in infrastructure include AustralianSuper Pty, H.E.S.T. Australia Ltd. and Construction & Building Unions Superannuation, according to Rainmaker Information. Funds Down Under poured A$42 billion into infrastructure over the past four years, Rainmaker data show.

“They are starting to become expensive,” Sicilia said. While equities provide investors with dividend yields, volatility can be a deterrent. Infrastructure and real estate investments are good alternatives, “but you need to stomach” their illiquid nature, he said.

Cross-Border Deals

Australian funds’ hunger for infrastructure extends beyond national borders. A contingent of senior executives from Australian retirement funds, along with Melbourne-based money manager IFM Investors Pty, visited U.S. Vice President Mike Pence last month to canvass potential cross-border infrastructure deals and explore ways pension money can be used to improve American roads and airports.

Discussions were centered around how pension funds can work as long-term financial backers as opposed to private equity funds, which typically sell their investments after making a profit, IFM chief executive officer Brett Himbury said.

“The key thing we talked about was a model we’re proposing, which is pension-public partnerships,” Himbury said.

About $800 billion of President Donald Trump’s touted $1 trillion infrastructure program is expected to come from states, cities and private capital, including pension money.

“There will be a day when pension funds will effectively own the planet,” Sicilia said. “They’re the only entities that can stomach 50-to-100-year investments.”

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