Low interest rates and term deposits, coupled with equity market volatility and franking credit uncertainty, are prompting SMSF investors to seek new ways to generate returns beyond their traditional portfolio concentration, bringing unlisted infrastructure opportunities to the fore.
Infrastructure Partners Investment Fund Management (IPIFM) executive director Nicole Connolly said Australia’s larger industry super funds have invested in unlisted infrastructure since the mid-1990s, accessing the benefits and diversification provided by these real and income-generating assets.
“The nation’s smaller institutional investors, high net worth individuals and close to 600,000 SMSFs have traditionally been excluded from the market,” Connolly said.
“We have recently witnessed an increase in the number of listed infrastructure funds on offer, however, no one has been able to address the issue of access to unlisted infrastructure.”
She noted the asset class has historically returned 9 per cent-plus a year.
“This is more than the yields from Australia’s top dividend stocks of the big four banks and well above the rates of term deposits,” she said.
“Couple this with the recent uncertainty over the future of franking credits and dividends, and it’s little wonder that more investors are increasingly considering the predictable and consistent returns of unlisted infrastructure, all without the associated market volatility of listed infrastructure.
“The key is to determine which assets and projects will provide the greatest and most consistent returns.”
According to Connolly, the Australian market was presenting significant opportunities for private investment in infrastructure.
“Australia’s governments are facing increasing fiscal gaps as the population ages,” she said.
“In addition, our capital cities are expected to grow by 11.8 million people in the next 30 years. Unlisted funds with strong institutional capital support are well placed to take advantage of this opportunity.
“This, coupled with the growth of superannuation expected to triple by 2035, will see the demand for unlisted infrastructure from investors rise further, in particular from smaller investors.”
Furthermore, private sector investment in infrastructure will be key in contributing to economic growth in Australia, improving the efficiency of how essential services are run and easing pressure on the public purse, she said.
IPIFM and its IPIF Core Fund were created in early 2015 in response to initial demand from SMSFs, high net worths and smaller institutional investors for the mix of income, capital growth and stability infrastructure assets can provide in a low-cost structure.
As at 30 June, the fund had delivered a return of 9.2 per cent a year since inception in January 2016 and attracted more than $115 million in funds under management.
“We are pleased with the progress of IPIF Core to date and the level of interest we have received from direct investors and smaller institutional funds,” Connolly said.