With Australian industry superannuation funds poised to invest A$19.5bn (€12bn) in infrastructure in Australia over the next three years, their fund manager, IFM Investors, has set out what it calls a “a new way of financing infrastructure construction”.
The proposal would essentially pave the way for superannuation funds to invest in greenfield projects, with provisions for them to be able to control development and other risks.
IFM is proposing a larger role for long-term equity investors in the construction of government infrastructure projects.
“IFM Investors is ready to invest billions of dollars in job-creating Australian infrastructure projects – we are putting forward this constructive proposal to help us do just that,” said David Neal, IFM Investors’ CEO.
IFM Investors is owned by 27 Australian industry superannuation funds, and has A$156bn in assets under management. Until now, its preference has been to invest in stabilised brownfield projects to avoid taking on development risk.
Under the new proposal, major projects would be broken up into smaller packages, enabling them to be shovel-ready faster, and allowing mid-tier contractors – not just large contractors – to compete in bidding processes.
IFM said that with more active management the risk of cost overruns would be lessened because issues would be identified earlier and dealt with quickly.
Under IFM’s proposal, more risk would be transferred to the private sector as equity partners would have an incentive to ensure on-time delivery and performance of the projects, it said.
The Melbourne-based asset manager said its approach would encourage more transparency and greater cooperation by jointly developing project scope, delivery milestones and project costings, leading to a more competitive tender process.
“Equity partners have an incentive to ensure the project delivers a quality service to the community at a reasonable price over the long term,” the fund manager said.
Neal said: “This model is a win for taxpayers and it’s a win for working Australians. It will help grow their superannuation returns while delivering them the public benefit of better infrastructure now and into the future.”
IPE Real Assets understands that IFM Investors has begun discussing its proposal with the Federal government, which has called on the superannuation industry to contribute to the rebuilding of Australia’s economy in the wake of the COVID-19 pandemic.
Industry Super Australia, which represents large funds, has pledged to commit A$19.5bn to infrastructure investment in Australia over the next three years.