Time for the Supers to step up

With necessary but controversial privatisations underway, Australian states are looking to the Superannuation funds to prove their commitment to their home market

Damned if they do, damned if they don’t. Such is the fate of the politician. Take the Australian state of Queensland, for example, where – faced with a mountain of debt and the loss of its AAA credit rating in 2009 – the Labor government embarked on a $15 billion wave of privatisations not seen since the state of Victoria triggered something similar in the 1990s. It was seen as the only way out of the mess.
Since then, deals have duly come to pass – delivering a much-needed boost to Queensland’s finances. The $2.1 billion, 99-year lease of Port of Brisbane to an investor consortium in November last year was one such example. And the reward? At the Queensland state election in March this year, Labor was annihilated at the polling booths – from holding 51 seats out of a total 89 in 2009 (just before launching the big sell off), it was left with a mere 15.
The culprit? Easy to identify. “Why privatisation killed Queensland Labor” proclaimed a Sydney Morning Herald headline. The irony? Following his Liberal National Party’s crushing victory (and, to be fair, before it), new Queensland Premier Campbell Newman said privatisations would continue, albeit insisting that the proceeds would be better spent.
On one reading, this is good news for infrastructure investors in Australia. Not just in Queensland but also in New South Wales, where the 99-year lease of Port Botany goes up for sale in October and fund managers are also salivating at the prospect of a $30 billion-plus auction of the electricity transmission and distribution system. The pipeline looks healthier than it has done in a decade or more.
However, given the public backlash at state assets being handed over to the private sector, the opportunity should arguably be greater for Australia’s mighty Superannuation (Super) funds. Representing over $1 trillion of assets, and benefitting from employees’ compulsory contributions equivalent to nine percent of salary, the Super funds certainly have buying power. Moreover, a key point is this: given that they are custodians of taxpayer money, their ownership of state assets is not as emotive (or at least, shouldn’t be).
Indeed, there have been calls for more investment from the Supers in Australian infrastructure from those who believe that they have prioritised international markets at the expense of the domestic market. There are at least two counter-arguments to this.
Firstly, they have a track record in Australia to point to. For example, at Infrastructure Investor’s recent roundtable in Sydney – a full summary of which will be found in our July/August 2012 issue – Michael Hanna of Industry Funds Management, which is owned by around 35 Super funds, pointed out that his firm had invested $2.9 billion of capital between 2002 and 2010 in five Australian airports – Melbourne, Adelaide, Brisbane, Darwin and Perth – while taking out less than half of that sum in distributions.
Secondly, the Super funds will argue that their commitment to the domestic market has never wavered – they have simply found their activities stymied over the years by a lack of deal flow.
But with a new wave of privatisations – as well as strong public-private partnership deal flow and high hopes for opportunities in the resources sector – that argument no longer holds. As trusted owners of long-term, sensitive assets, it’s time for the Supers to step up to the plate.