The SMSF Association (SMSFA) has declared there is an urgent need to open infrastructure investments to SMSFs, with the federal government and opposition focusing on future infrastructure opportunities.
“Although the SMSF sector has nearly $600 billion in funds under management, it is effectively barred from investing in infrastructure,” SMSFA chief executive Andrea Slattery said today.
“This is despite the fact that infrastructure assets have an obvious attraction for SMSF trustees who are looking for long-term investment horizons and healthy yields in a low interest rate environment.”
Slattery said there were three factors inhibiting direct SMSF investment in infrastructure – the high dollar price tag to invest, illiquidity, and the high entry and “exorbitant” ongoing management fees those investments attracted.
“These issues have proved an insurmountable barrier to entry in the past, but from the association’s perspective, there is no logical reason why this has to be the case,” she said.
“As we said in our submission to the Financial System Inquiry, options include offering unitised investments in smaller parcels or infrastructure bonds.
“Another possibility is ASX-listed infrastructure funds.
“Whatever the mechanism, it should be remembered that SMSF trustees prefer to invest directly, with total SMSF investment in managed funds now standing at only 5.1 per cent.”
Another attraction for trustees was the risk profile of some infrastructure assets, she said.
While greenfield projects obviously came with a higher risk, and as such might require a form of government-backed guarantee, at least in the early stages, established infrastructure had a risk profile that typically sat between cash and fixed interest and property and equities, she said.
“For trustees, particularly in the pension phase, it offers both a degree of security and potentially higher yields than what they can currently get from cash or term deposits,” she said.
“Indeed, the income from this asset class could be used to fund income streams in retirement – a type of annuity.”
She said she believed investment in infrastructure would require SMSF trustees to acquire a new investment skill, but they had demonstrated with other assets, such as exchange-traded funds, the capacity to invest outside their traditional investments of Australian equities, property, and cash and fixed deposits.
“We would expect trustees, especially in the early stages, to seek advice from an SMSF specialist if they were contemplating such an investment to ensure they full understood the risk/reward profile of the investment,” she said.
