Australian Infrastructure Investment Report 2019

MAJOR REPORTSINVESTMENT
14 November 2019

Report: Australian Infrastructure Investment Report 2019

This year’s survey captures the views of international and Australian investors who together collectively own or manage around AU$490 billion of infrastructure assets across the globe.

Our report provides a comprehensive annual view of investor appetite and sentiment. It reveals insights into the drivers and challenges for infrastructure investors, which include sovereign wealth funds, pension funds, fund managers, banks and other infrastructure professionals.

 

 

 



Executive Message


The 2019 Australian Infrastructure Investment Report marks the fifth anniversary of the study. The last five years has seen the global economy enter a period of heightened uncertainty. A low interest rate environment has intensified the hunt for yield and has changed the risk/reward calculation for investors. After examining this year’s results against several years of historical data it’s clear investors in Australian infrastructure have not been immune to this changing risk environment.

Investors understand well the balance of risk and reward, and are adapting their risk appetite to seek new opportunities in an Australian infrastructure market, which remains highly competitive and active. However, this year’s report shows that in some areas the necessary risk/reward balance has been disrupted, and we are seeing growing risks without rewards.


Australian infrastructure is highly attractive, but also highly competitive

Investor appetite for Australian infrastructure remains strong, with 90 per cent of participants ‘highly likely’ to invest in Australia in the next two to three years (equal to the 2018 result). The attractiveness of the Australian market is primarily driven by our strong track record for infrastructure delivery and the sophistication of local market participants and partners.

The strength of the Australian market also creates challenges for investors. Forty-five per cent of participants reported that competition for assets and a lack of opportunities are creating challenges in finding new investments. This has led to some investors moving up the risk curve or expanding their investment mandate to pursue opportunities in core-plus infrastructure assets such as data centres or land-titles registries. Termed ‘core-plus’ assets for their similar characteristics to core infrastructure assets, they may also exhibit shorter contracts, higher volatility and potential earnings. In fact, 64 per cent of participants showed a preference for coreplus assets, making them just as popular as passenger rail or water infrastructure from an investor’s perspective.

 

Some risks are symptoms of a flourishing market

A competitive market is a healthy market, and it would be anticipated for investors to move up the risk curve into assets such as core-plus infrastructure. In recent years, Australia’s strong infrastructure market has made it a destination of choice for international investors. Australian governments and infrastructure developers have harnessed private capital and expertise to accelerate the pipeline of infrastructure projects across the country.

However, Australia is somewhat a victim of its own success, with the sector feeling the pressure of a high volume of projects simultaneously entering the delivery phase. This increased market pressure is seeing risk allocation on complex projects, and capacity constraints in the construction market, begin to impact the cost of infrastructure delivery. Ninety per cent of participants agreed that the Australian infrastructure market is facing capacity constraints, with these constraints felt to a high degree in civil and tunnelling projects. While challenging, many of these risks can be traced to a flourishing market and are typically priced to match risk and reward.

 

Policy and regulatory risks are without reward

Not all risks in the Australian infrastructure market are matched by commensurate reward. Eighty-three per cent of participants agreed that uncertainty in Australia’s policy and regulatory settings is limiting their willingness to invest. Many investors have long investment horizons and their memories are just as long. A flurry of government interventions, tax changes and regulatory reviews in recent years has caused concern for many investors. While some risks are symptoms of a busy market, or offer rewards proportionate to the risks being taken, policy and regulatory uncertainty have little upside for investors, taxpayers or customers. Instead, policy and regulatory uncertainty dampen incentives and drive poorer outcomes for infrastructure users.

Over recent decades, Australia’s reputation as a leading infrastructure investment market has been built on stable market frameworks and rules, with ongoing uncertainty in energy policy and regulation being the notable exception. This year’s report confirms that new challenges have arrived, with the risk environment changing on several fronts. As we navigate this new environment, policymakers and regulators must work to reduce those risks which offer few rewards.

 

We thank each participant for their contribution to the fifth Australian Infrastructure Investment Report.

 

Adrian Dwyer, Chief Executive Officer – Infrastructure Partnerships Australia

David Donnelly, Partner – Allens

Richard McCarthy, Group Executive – Perpetual Corporate Trust

 


 


 

Watch Adrian Dwyer and Allens’ Partner David Donnelly discuss the findings of the report

 

 


 

Key Statistics

 

Investor appetite for Australian infrastructure remains strong and steady

 90 per cent 

are ‘highly likely’ to invest in Australia, the same level as in 2018

 

 

But investors are struggling to find enough investment opportunities in the competitive Australian market

79 per cent 

of investors say North America provides compelling investment opportunities

only 49 per cent 

of investors say the same about Australia

45 per cent 

said competition for assets and a lack of opportunities are significant challenges for investment

 

 

So, investors are moving up the risk curve to pursue opportunities in core-plus assets

 

64 per cent

showed a preference for core-plus infrastructure, meaning it ranks the same as passenger rail or water infrastructure

 

 

 



For more information, please contact:

 

Adrian Dwyer
Chief Executive Officer
Infrastructure Partnerships Australia

adrian.dwyer
@infrastructure.org.au

+61 2 9152 6000

 

David Donnelly
Partner
Allens

david.donnelly
@allens.com.au

+61 3 9613 8112

 

Hamilton Hayden
Senior Policy Adviser
Infrastructure Partnerships Australia

hamilton.hayden
@infrastructure.org.au

+61 2 9152 6018

 

Vicki Riggio
General Manager, Managed Funds Services
Perpetual Corporate trust

vicki.riggio
@perpetual.com.au

+61 2 9229 9654

 

 


For all media enquiries contact:

Michael Player
Director, Communications and Engagement
Infrastructure Partnerships Australia

michael.player
@infrastructure.org.au

+61 2 9152 6016

 

Gary Lembit
Senior Manager, Client Insights & Analytics
Perpetual Corporate Trust

gary.lembit
@perpetual.com.au

+61 2 9229 9462


 

  

 

 

Follow the conversation – Share, like and comment under #InfraInvestment19.