Lack of projects deter super billions

A report by Ernst & Young for the Financial Services Council says several barriers are deterring super funds: a dearth of suitably sized and structured government-backed projects, underperformance of some toll roads (which hit confidence in new “greenfields” projects), lengthy and costly tender processes, uncertain timetables, poor coordination between state and federal governments, and policy uncertainty (for example around carbon pricing and renewable energy).

The article notes Australia’s super ‘nest egg’ is about $1,300 billion. Australian super funds are estimated to have between 5% and 10% of their assets in infrastructure — roughly $40 billion to $80 billion (excluding self-managed super funds). About $6 billion of that infrastructure exposure is estimated to be invested in Australian airports.

According to the report, a significant proportion of superannuation infrastructure holdings has gone into office buildings and airports, rather than into widely used transport, energy or water infrastructure. The article also notes industry funds typically hold a higher share of infrastructure compared with retail funds.

Underperformance by a series of toll roads has dented investor confidence in the sector, especially for new or ‘greenfields’ road projects. That loss of confidence makes trustees more cautious about committing capital to similar large-scale transport projects until risks are better managed.

Government policy and project design are critical. Super funds want projects of a suitable size and structure and clear, stable policy settings. Uncertainty over policies (such as carbon pricing and renewable energy initiatives), reluctance by governments to borrow, and poor coordination between state and federal authorities can all reduce the attractiveness of projects and raise ‘unacceptable’ risk for funds.

Yes. The Ernst & Young report confirms Australian super funds are willing to channel a greater share of the $1.3 trillion pool into infrastructure projects like roads, rail and power stations — but only if suitable, well-structured projects and clearer risk allocation are available. Fund trustees must still prioritise delivering commercial returns to members.

Infrastructure Australia warned the country will need about $300 billion in infrastructure spending over the next decade, and some of that will need to come from the private sector. The Financial Services Council, which represents for‑profit (retail) super funds managing about 28% of the super pool, commissioned the Ernst & Young report amid ongoing calls for more super savings to be used for infrastructure.

Everyday investors should know infrastructure assets can be illiquid and involve long-term commitments, which is a common industry concern. Trustees are legally required to invest for members’ commercial returns — the FSC’s John Brogden cautioned that superannuation shouldn’t be treated as a ‘cash cow’ to solve infrastructure needs. Complex tender processes, long timetables and policy uncertainty also increase project risk and influence how much super funds allocate to infrastructure.