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Secret is out: US pension funds circle Australian infrastructure assets

10 Dec 2012 SYDNEY MORNING HERALD - CLANCY YEATES



INCREASING numbers of US pension funds are signing up with Australia's biggest infrastructure investor as global demand grows for alternative places to park billions in retiree savings.

Over the past year, Industry Funds Management has seen a surge in investor commitments of up to $US850 million ($811 million) from a range of US funds, which now make up more than a third of its overseas clients.

With most of the US clients committing the funds in the past 18 months, IFM said the trend highlighted growing overseas recognition of Australia's expertise in managing infrastructure assets globally.

The chairman of IFM, Garry Weaven,said the "spectacular" growth in US investment showed asset management had the potential to become a bigger export industry for Australian firms.

IFM, which is owned by industry funds and manages $37 billion, was a pioneer in the development investments in assets such as ports, freeways and power stations. "By being a fairly early mover, it means we're an established player at the right time when a lot of the rest of the world is starting to see this as a good, very stable alternative to simple sharemarket investing," Mr Weaven said.

"It indicates that Australian specialist fund managers that take this sort of path can become significant earners of income from offshore investors," he said.

While the so-called Macquarie model of externally managed infrastructure funds is on the nose with many investors, IFM's Australian infrastructure fund has averaged double-digit returns over 17 years.

The mandates from US investors have typically involved managing infrastructure assets in the US and Europe, but Mr Weaven said the trend could support Australian infrastructure projects in the longer term.

"Certainly in the long term, there's no doubt that this is opening up a much bigger pool of global funds to support Australian infrastructure development, if we could ever get our act together as a nation to really get stuck into that," he said.

The trend follows growing interest in Australian infrastructure from Canadian pension funds, with the Canadian Pension Plan Investment Board this year teaming up with Lend Lease to develop the Barangaroo project in Sydney.

Mr Weaven said North American clients made up 32 of a total of about 80 total clients in the world, and most of the new US business had signed up in the last 18 months.

US funds to have signed up with IFM include the $US155 billion California State Teachers' Retirement System, CalSTRS, the pension fund for Northwest Airlines, and several funds that are jointly managed by employers and staff.

Across its domestic and global operations, IFM's funds under management have grown to $37 billion, an increase of more than three-fold from its funds under management of $12.2 billion in 2005-06.