Australian superannuation funds have, with their Canadian counterparts, led the way on infrastructure investment and, as Mike Taylor reports from New York, it is a phenomenon which has helped the National Australia Bank rank as the foremost US Private Placement Infrastructure bank.
National Australia Bank has emerged as the quiet achiever in the almost decade-long push by Australian superannuation funds to invest in infrastructure in North America, Europe and elsewhere.
The measure of the bank’s achievement is that it is now rated the number one US Private Placement Infrastructure bank, globally.
It is something that has grown out of NAB acting as a both a facilitator and a conduit while investing in its capability in both Australia and North America – something which was made clear to Super Review by NAB head of Fixed Income Currencies and Commodities for North America, Anthony Deagan and the bank’s North American head of Funds and Insurance, Patrick Ryan.
Indeed, Ryan said infrastructure investment represented a great example of where the whole flow of super money made sense.
Speaking in the bank’s New York offices, Ryan said infrastructure investment represented a “great example of where NAB’s product set and geographical footprint tied in with an asset class perfectly”.
“We have had a massive role to play here in the US flowing from that, and it starts from the super funds,” he said.
Putting the situation in context, both Ryan and Deagan reflected that Australian super funds had significant allocations to infrastructure similar in scale to that of the Canadian pension funds.
“That money gets put to use in certain ways and one way that money gets put to use is by giving mandates to large, offshore infrastructure funds, many of which are based here in the US,” Ryan said.
“We bank those funds here in the US within various banking products and those funds then go and invest in global assets.
“NAB has a role to play in the financing of those assets and the advisory and risk management solutions around those assets, and when it comes to refinancing a lot of that initial bank debt – it is a core niche market for us here in the US,” Ryan said.
“We refinance into the debt capital markets to a specific sector called the US Private Placement Market and that has been a great success story for NAB because we’re attaching ourselves effectively to the whole flow of funds in that infrastructure cycle from super money right through the distribution of product to an investor base here in the US.”
Ryan said that it was on the back of this strong deal flow coming out of Australia and the UK, that NAB had risen to be the number one US Private Placement Infrastructure bank globally.
What is more, Ryan and Deagan do not see the appetite for infrastructure which has driven NAB’s position ending any time soon.
“You only have to see some of the statistics in Australia and the numbers that get thrown around such as a $700 billion funding requirement over the next 10 years, and the Government balance sheet pressures to know that the funding requirement is significant,” Ryan said.
“The other factor is, too, that not only are Australian super funds giving mandates to US fund managers but they’re investing directly, so we’re starting to see certain funds who have the in-house skill and expertise actually coming and investing in US assets.”
Ryan said that even in circumstances where superannuation funds were choosing to be self-directed into US infrastructure, the bank had a role to play in terms of the debt capital markets and finding the end buyers for the debt on those projects.
Deagan emphasised that the bank’s relative success with respect to infrastructure was no coincidence, saying “we’ve spent a lot of time and a lot of effort building our client footprint, building the conversations and relationships we need to have”.
However he and Ryan do acknowledge that the bank has benefited from Australian superannuation funds, together with the Canadian pension funds, being pioneers in the infrastructure investment space.
“The Organisation for Economic Cooperation and Development (OECD) released a report the other day which surveyed a bunch of the largest global pension funds and on average, I think, for those funds that do invest in infrastructure, unlisted equity represented around 3 per cent of their assets,” Ryan said.
However he said that for the Canadian and Australian pension funds, in certain cases, it was over 10 per cent.
“So the Canadians and Australians definitely lead the way and have done so for a while,” Ryan said.
Notwithstanding this, he said that while the US pension funds had been relatively inactive in the infrastructure space, they were starting to become a part of the equation.
Ryan said he believed there were a number of factors underlying the different approaches between the Canadian and Australian pension funds and those of the US, with the Australian and Canadian political and regulatory regimes being more conducive to public private partnerships, while the situation was more fragmented and challenging in the US.
“But the US pension funds certainly realise that, as an asset class, infrastructure is important and that it matches their liabilities,” he said.
“They are increasing their allocations and we’re starting to see that,” Ryan said.