Superannuation investment in infrastructure – Steps to further efficiency
Australia’s $1.75 trillion superannuation industry makes a significant contribution to Australia’s infrastructure.
This research report prepared for the Financial Services Council by EY has cited the lack of suitable infrastructure projects as a significant barrier for investment in infrastructure by superannuation funds.
Our report shows super funds are willing to invest more in infrastructure projects where they deliver an appropriate risk weighted return for fund members. The report also supports the emerging capital recycling model for infrastructure funding.
The clear message is that there is significant appetite from super funds to invest more in infrastructure in Australia – but unlocking greater investment will require a clear, committed pipeline of projects and greater long term certainty on tax and regulation.
The review confirmed that while improvements have been made, the barriers to greater investment by super funds in infrastructure that we identified in 2011 remain today.
The FSC-EY report shows there is an opportunity to stimulate further investment in infrastructure by:
- Incentivising states to establish full capital recycling processes for key infrastructure
- Providing certainty over Commonwealth superannuation regulation and taxation policy
- Establishing a formal ‘early project’ consultation process between the states and superannuation investors to enable early consideration of transaction structures and procurement processes
Key barriers to investment in infrastructure include:
- Lack of a clear project pipeline and government commitment
- Lack of suitably structured projects for institutional investment
- Greenfield project risks
- Inconsistent, complex and expensive bidding processes
- Regulatory and industry pressures
- Sovereign and political risk
- Unfavourable Australian banking terms