Home' Superfunds : Superfunds December 2015 Contents infrastructure, of which about half is invested
in unlisted domestic infrastructure, with a
quarter each in both listed infrastructure and
international infrastructure. This figure is likely
to be understated due to indirect investment
and classification as alternative assets. The
Organisation for Economic Co-operation and
Development (OECD) estimates that the allocation
is somewhere between 5 to 8 per cent of assets.
Professor Casey suggests that “it is similarly
very difficult to assess the allocation to
infrastructure assets by European pension funds,
being difficult to distinguish infrastructure from
a broader heading of alternatives, or unlisted
property, or the like. So, we have guesstimates”.
Nevertheless, Professor Casey points towards
the best guesstimates from the OECD and
European Investment Bank, which suggest a
developing interest, with United Kingdom pension
funds allocating about 1 per cent of assets to
infrastructure. Dutch pension funds are starting to
dip their toes in the water, and Danish and Finnish
pension funds have started to show interest in
renewable energy infrastructure. Movement might
be slow, but we are starting to see a developing
appetite to invest in infrastructure globally.
However, so far, the appetite is for ‘brownfield’
rather than ‘greenfield’ investments—it is not
the construction of new infrastructure but the
management (or sometimes the enhancement of
existing) infrastructure. Pension funds are rarely
willing to take on construction risk.
CHALLENGES AND RISKS IN
The infrastructure deficit is not a problem that
superannuation and pension funds are responsible
for, but it may create investment opportunities.
As pioneers, superannuation funds are well
positioned to capitalise on this, yet there are
Professor Casey highlights the unique aspect
of infrastructure investment by Australian
superannuation funds compared with Europe and
North America. He states that, in Australia, it is
defined contribution funds rather than defined
benefit funds that are investing in infrastructure.
This accentuates two risks—those of liquidity
and valuation. In Australia, pension savers can
switch funds at little notice and almost as often
as they like. Yet infrastructure assets are highly
illiquid and most are not ‘listed’. Professor
Casey suggests that “defined contribution
superannuation funds rely on high levels of inertia
to manage liquidity risk”.
The fact that the investments are not listed
means that assessing the value of a fund, and
so of an individual account, is also complex.
Professor Casey explains that infrastructure asset
valuation is generally ‘mark to model’ rather than
‘mark to market’, raising the prospect of a process
that is “10 per cent science and 90 per cent
art”. To some extent, what an account is worth
depends upon the model and the assumptions of
the modeller. Revaluation can shift values from
one date to another and a saver might be on the
‘wrong’ or the ‘right’ side of that revaluation.
Indirect infrastructure investment vehicles are
making infrastructure assets more accessible
to investors who do not have the traditional
profile of an infrastructure investor. Equity and
debt infrastructure investments can be accessed
through an intermediary such as wholesale or
listed managed investment scheme. There are
over 140 such schemes globally, and there are
challenges faced by indirect investment.
The 2015 Preqin Global Infrastructure Report
outlines an increase to $105 billion in dry powder
in managed infrastructure schemes (capital
committed to unlisted infrastructure but not yet
called up) in 2014, representing over a third of all
unlisted infrastructure assets under management
globally. This can easily be seen as a sign that
there might be too many dollars chasing too
The strong demand for infrastructure
investments (and the deficit in projects) will
mean that there will continue to be strong
competition between managed infrastructure
investment schemes, pension and superannuation
funds investing directly, international financial
institutions and sovereign wealth funds.
Positioning to manage the associated risks once
the supply of infrastructure projects increases, will
be an important factor for superannuation funds
continuing to lead the way internationally.
Superfunds December 2015
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