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Why Hostplus is betting big on infrastructure

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Australia’s top-performing pension fund over the past three years wants to invest in more toll roads and airports, betting infrastructure assets will offer among the most reliable returns over coming decades.

Sam Sicilia, who oversees $25 billion of assets at Hostplus, is seeking board approval to invest about 12 per cent of the fund’s capital in infrastructure, from 10 per cent now.

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Australian funds managing retirement savings now hold $100 billion in infrastructure assets, double the amount four years ago, data from researcher Rainmaker Group show.

And soaring worldwide investor demand has pushed the average size of such deals to a record $683 million, according to Preqin data.

Hostplus chief investment officer Sam Sicilia is seeking board approval to invest about 12 per cent of the fund's ... Hostplus chief investment officer Sam Sicilia is seeking board approval to invest about 12 per cent of the fund’s capital in infrastructure, from 10 per cent now.  Photo: Arsineh Houspian

Even still, Sicilia sees potential to acquire more stakes in attractive assets, which he views as offering steady, predictable income for his fund’s almost 1 million members – most of whom work in hospitality and whose average age is 33.

Hostplus, which has stakes in airports and office buildings to water filtration plants and wind farms, beat its local peers with a 9.5 per cent return over the three years ended May 31.

“The pipelines are still healthy with opportunities, and we think that will increase as governments become more accustomed to divesting assets,” Sicilia said.

Prices for infrastructure assets reached eye-watering levels as opportunities to invest dwindled. There were 650 sales in the six months ended June 30, from 1,110 a year earlier, Preqin data show. Meantime, other funds managing Australia’s $2.3 trillion in retirement savings have also been piling in.

Australian funds managing retirement savings now hold $100 billion in infrastructure assets, double the amount four ... Australian funds managing retirement savings now hold $100 billion in infrastructure assets, double the amount four years ago. Photo: Rob Homer

“They are starting to become expensive,” Sicilia said. While equities provide investors with dividend yields, volatility can be a deterrent. Infrastructure and real estate investments are good alternatives, “but you need to stomach” their illiquid nature, he said.

Cross-border deals

Australian funds’ hunger for infrastructure extends beyond national borders.

A contingent of senior executives from Australian retirement funds, along with Melbourne-based money manager IFM Investors, visited US Vice-President Mike Pence last month to canvass potential cross-border infrastructure deals and explore ways pension money can be used to improve American roads and airports.

Discussions were centred around how pension funds can work as long-term financial backers as opposed to private equity funds, which typically sell their investments after making a profit, IFM chief executive officer Brett Himbury said.

The pipelines are still healthy with opportunities, and we think that will increase as governments become more accustomed to divesting assets.

“The key thing we talked about was a model we’re proposing, which is pension-public partnerships,” Himbury said.

About $US800 billion ($1.052 trillion) of President Donald Trump’s touted $US1 trillion infrastructure program is expected to come from states, cities and private capital, including pension money.

“There will be a day when pension funds will effectively own the planet,” Sicilia said. “They’re the only entities that can stomach 50-to-100-year investments.”

Bloomberg

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