26 Sep 2013

Solving the Risk / Return equation for Infrastructure Investments

Adequate infrastructure investment is a challenge for Australia, and as Linda Evans tells BRR Media, superannuation funds could offer a solution if the risk/return equation can be solved.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.


Solving the Risk / Return equation for Infrastructure Investments
Kate Ritchie, BRR Media
Linda Evans, Partner, Clayton Utz

Linda Evans

There have been some recent calls for superannuation funds to ensure they have a lot of liquidity in those funds. One of the challenges that presents for funds looking to invest in infrastructure assets is that the nature of infrastructure assets is that they are long-term assets, and the benefit from holding those assets come from being able to get significant returns over a long period of time.

During that ownership you have to invest to upgrade and to add additional capacity and those are what are called lumpy investments, so they'll add on much more capacity than you need in the short term, so you really need to hold for a long term to get the value coming from those investments. So the more liquidity that you need in a superannuation fund, the less the level of infrastructure investment because of those competing tensions.

That issue is complicated in Australia, particularly for retail superannuation funds, because members can shift their money between funds on very short notice, and that's a bit of a difference from the position with the Canadian pension funds - in Canada, most people are on defined benefit schemes so that the superannuation fund can predict much more reliably when those funds are going to be required.

Kate Ritchie

Are there any other barriers to infrastructure investment and how could this be improved?

Linda Evans

Infrastructure Australia's done a really good job of prioritising the projects that are put to it for it to consider, but it doesn't have the ability to actually identify projects of its own motion that it thinks would be appropriate for investment, and I think that would be a really important development. It would give Infrastructure Australia a broader role and having an independent organisation like Infrastructure Australia identifying priority projects would be particularly important.

The other issue that's really important is managing the upfront utilisation risk. We've seen that be a very significant issue for a number of projects recently and toll roads are the classic example. We need to find a way to better manage that issue. We've seen with WestConnex there have been some innovative proposals that seem to be looking to address that and I think governments should be encouraged to look to that kind of a model.

Kate Ritchie

That sounds like a good idea Linda. Thank you so much for joining us.

Linda Evans

Thank you.