Super funds drive up infrastructure values

The privatisation of Government assets may be politically risky, but failure to do so risks missing out on benefiting from once-in-a-lifetime market conditions, according to new research published by Whitehelm Capital.

According to an analysis published this month, Whitehelm believes politicians need to look beyond voter emotion and act more like rational investors, "subscribing to the idea that all state-owned infrastructure should be for sale at the right price". 

Looking at the current dynamic, the Whitehelm research points to the current pricing for infrastructure assets being significantly higher than long-term averages and attributes this, in part, to the role being played by superannuation funds. 

"Based on research conducted by Whitehelm Capital, listed infrastructure assets traded at a 20 per cent to 30 per cent discount to the broader market prior to the global financial crisis.  However, in the post-GFC environment, infrastructure asset pricing has increased, and now trade at around a 40 per cent premium to the general market," it said. 

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The company attributed this to two related factors - "the abundance of very large Australian pension funds, international infrastructure fund managers, sovereign wealth funds from Europe, Canada, the Middle East and Asia, who were all vying for the world's big infrastructure assets; and a world of low interest rates, low inflation and low growth which has investors scrambling to get their hands on the stable distribution yields that are characteristic of the infrastructure asset class. 

The Whitehlem research argues that private sector ownership may bring with it a number of benefits, including a lower cost of service and allocative and dynamic efficiency gains, while at the same time helping to alleviate the implicit conflict of interest for governments that regulate the assets that they own and manage. 

"Offloading the asset, while maintaining regulation, allows governments the ability to retain industry oversight to address competition, pricing and service quality standards," it said.