everyyearintheorderof$800millionto$1billion.
Theycan’tkeeppilingintoAustralianequities,”says
Rappell.“Theyneedtolookfornewopportunitiesand
diversify.Thekeychallengeishowtoaddtoinvestors’
returns.”
Infrastructure investing suits the long-term nature
ofsuperannuation,wherecontributionssitinaperson’s
account from their first job until retirement. Over that
longterm,theinfrastructureassetpaysanincome
stream.Inthecaseofprojectsthatareregulated,such
asutilities,theincomeisprotected,stableandpredict-
able but not guaranteed. Other user-pay infrastructure
assetsaremoremarketdriven.
Industry funds like the fact that these assets provide
realjobs,oftenfortheirownmembers.Cbus,afund
originally set up for the building and construction
industrysome37yearsago,saysithasbeenableto
provide70,000jobsdirectlyand50,000indirectjobs
in its building developments. Kristian Fok, chief invest-
ment officer at Cbus, says that it is more desirable to
allocate members’ savings to productive use in Aus-
tralia to create jobs and build the economy.
Industry funds such as AustralianSuper and REST
havebeeninthenewsrecentlyfortheirinvestmentin
energy companies. AustralianSuper bought a large
chunkofAusgrid,andRESTboughta99-yearlease
fora50.4%stakeintheNSWelectricitydistribution
companyEndeavourEnergy.RESTchiefexecutive
Damian Hill says this is a win for its 1.9 million mem-
bersbecauseitdeliversstable,long-termcashflows
in excess of REST’s core strategy return target.
REST’s $2 billion in infrastructure investments is
managed by AMP Capital and SIM. Its other energy
investmentsincludeCollgarWindFarm(Western
Australia), Powerco (a dual-energy distributor in New
Zealand) and Capistrano Wind Partners (US).
Butthehighlycompetitivehuntforinvestments
yielding strong, steady returns means that
infrastructure has become expensive. Infra-
structure advisers and experts are in demand.
Super funds are establishing their in-house
infrastructureexpertsaswellasusingoutside
advisers. “Lots of investors are competing for
existing assets,” says Fok.
Thekeychallengeisbuyingattheright
price, says Rappell. Australian infrastructure
investments are limited and groups such as
IFMhavegoneglobaltofindopportunities.
When ITR Concession, operator of the Indiana
tollroad,filedforbankruptcyonmorethan
$US6 billion worth of debt, IFM picked it up.
It highlighted how many infrastructure projects are
funded with borrowings and if the returns, such as the
tolls, don’t pay down the debt, the investment can fail.
Infrastructurecarrieshighlevelsofdebtasbanks
are prepared lend big amounts because of the relative
stability. Garry Weaven, the chair of IFM, says the net
debt-to-enterprise value gearing ratios vary widely
depending on the sector. “A PPP [public private part-
nership]withastate-basedrevenuestreammight
be at 75% leverage, with a strong investment-grade
rating. An asset that has volume risk, like an airport,
maybecloserto40%leveragewiththesameresulting
rating,” he says.
Valuing infrastructure can be tricky as the valuer
isbeingpaidbythefund.However,FoksaysCbus
employs independent valuers that it reviews and rotates
overtime.HesaysAPRA,theregulator,ismindful
that super funds have robust processes in place.
Some super funds have been burnt by infrastructure,
particularly by the illiquidity issues that come with
divesting a big, lumpy, expensive asset. Some, such as
Hostplus, the best-performing Australian super fund
over the past three years, have invested in Australian
andChinesestart-upsandentrepreneurs.Hostplus,for
example,hasplaced$350millioninventurecapital.It
has$150millionwithArtesian,aseed-stageventure
capitalfirmthathasalmost100investments,including
later-stageventuressuchasFameandPartners,Swift,
Hey You, Instaclustr, Clarity Pharmaceuticals, CriticalArc,
ingogo, Jayride and Gamurs. Hostplus’s other venture
capitalinvestmentsincludeMHCarnegie&Co,Brandon
Capital, Blackbird Ventures and Square Peg Capital.
Hostplus’s balanced option is the top fund perform-
er and has returned 9.72%pa over the three years to
the end of April 2017.
“There is no doubt that technology has shaped our
societyandispervasiveinoureverydaylives,”says
DavidElia,CEOofHostplus.“Infact,technol-
ogy companies have become the most valuable
companiesintheworld.Webelieveitmakes
sensetofurtherdiversifyourportfoliointo
venturecapitalandfostergreaterinnovation
for Australia.”
Cbus has also benefited from the property
boom.Itholds$2billionindirectproperties
that it has developed. Over 10 years from 2006
to 2016, Cbus property has delivered returns
of 15.5%pa and profit of $1.5 billion. In 2016,
property returned 24% to the fund’s bottom
line and this year it is expected to add a further
20%, says Fok.MFunds that
offer an
infrastructure
option
Ifyouwanttobuild
your own portfolio of
investments, Hostplus
offers an infrastruc-
ture investment option
that invests directly in
IFM’s Australian infra-
structure.Itwassetup
in 2015 and the option
returned 21% in 2016.
Cbus offers an
infrastructure
investment option for
self-directed investors
that is made up of
20% global-listed
infrastructure. It has
a range of different
infrastructure
managers with 50% in
IFM’s Australian and
global funds. The
option has 20% with
Hastings, 20% with
RARE global listed
infrastructure fund,
5% in NSW Ports and
5% with the Indiana
Toll Road. Around half
is in Australia and the
other half is global.Infrastructure and direct
property: who holds it
(unlistedequitiesandhedgefunds)atMarch2017INFRASTRUCTURE PROPERTYDIRECTCorporate funds 3% 7%
Industry funds 9% 8%
Public sector funds 4% 7%
Retail 2% 1%
SMSF^1 0% 15%
Source: APRA.^1 Figures from the ATO.performance