Malcolm Turnbull seems to have figured out how to get Donald Trump’s attention — show your Goldman Sachs stripes and talk about ways to finance big, beautiful things. Like sewer systems.
During his recent sojourn to Washington, Turnbull wasn’t above bragging about how much retirement money we’ve all got tucked away under our mattresses. He was there to push the Australian agenda for trade and investment, with high hopes of dazzling the world’s most mercurial leader after an awkward start to their relationship. For reinforcement, the PM arrived with more than 20 other powerful finance and political leaders in tow.
One of the key focuses was the potential for Australian superannuation funds to increase their investments in American infrastructure assets. Trump desperately needs creative ways to fund his ambitious infrastructure plan, which is currently lacking support on both sides of the aisle.
Trump may well have been nodding politely at Turnbull until he heard the size of the potential money on offer. At around $2.5 trillion, the Aussie retirement savings pool is the fourth largest in the world.
Fear not though, Turnbull cannot simply hand over our hard-earned savings in a lump sum. Our super belongs to us. Dr Martin Fahy, CEO of the Association of Superannuation Funds of Australia (ASFA) notes some of the potential benefits of infrastructure forming part of a super portfolio.
“Infrastructure assets can be a source of stable, long-term cash flows, and returns on [these] typically have a low correlation to returns on traditional asset classes,” he says.
So what exactly do these political manoeuvres in D.C. mean for the average Australian? Most likely nothing drastic at this stage, depending on your fund’s investment mix. It’s worth noting though that exposure to infrastructure is on the rise, according to Dr Fahy.
“As of December 2017, around 5% of the total assets of APRA-regulated funds were invested in infrastructure, up from just over 3% in September 2014. In dollar terms, total infrastructure assets of APRA-regulated funds increased by $45 billion over this period. This reflects increased exposure to both local and overseas infrastructure assets.”
As such, your fund may already have some exposure to this growing asset class, possibly even via offshore assets, and it may not be through something obvious. A key example of this is Transurban Group, which manages and develops toll roads in urban areas in both Australia and America. As a large cap stock, it’s likely you’ll find it in your portfolio under Australian shares. According to the ASFA, super funds find existing toll roads appealing due to stable cash flow.
Turnbull’s push was aided by Australia’s ambassador to the United States, Joe Hockey, who has been touting the Australian model of “asset recycling” in America. This is where existing assets are sold or leased in order to fund new projects. Dr Fahy says that US government officials have shown a particular interest in this concept.
Good infrastructure assets are notoriously hard to come by. Airports are not built every day, and particularly not in industrialised nations. When the world’s largest developed economy has a crumbling infrastructure network in need of a cash injection, Australian investment managers spy opportunities.
However, funds must still conduct appropriate due diligence before going ahead with any purchases or offering up-front capital for new projects. “Funds consider particular infrastructure assets as they would any other investment — whether the investment is in the best interests of their members,” Dr Fahy says.
So while some may fear that Turnbull has sold us down the river in order to curry favour with Trump, he isn’t able to move or allocate super funds himself. Australians are also free to choose their own fund under law, and within each fund will be a range of investment options.
Moreover, given that Trump is — cough — legislatively challenged, it may well take some time before anything eventuates out of this potential deal. Even a swift move through Congress would still likely spell a long wait for hopeful super funds making any deals in America. The scale of these projects means they can take years to pull together, particularly when building from the ground up.
Also, the selling or long-term leasing of any of form of public asset may receive pushback from the American public, as it has also done within Australia in the past. Future decisions will lie with the likes of whoever replaces Trump’s lead economic adviser Gary Cohn (who was an apparent holdout against Trump’s call for import tariffs), as well as state governments and the American people themselves.
It may feel a little like Turnbull and Hockey put aside old rivalries, donned their best capitalist caps and dangled a sizeable fiscal carrot in front of Trump — but it also may be the case that Australians’ super accounts could benefit in the long run.