There is an urgent need to open up infrastructure investment to the self-managed super fund (SMSF) sector, says SMSF Association CEO/Managing Director Andrea Slattery.
Slattery says that with both the Government and Opposition focusing on infrastructure, including how to raise the billions of dollars in capital required to meet Australia’s needs in the coming decades, now was the “opportune time” to remove any road blocks to SMSF investment in this asset class.
“Although the SMSF sector has nearly $600 billion in FUM, it is effectively barred from investing in infrastructure.
“This is despite the fact that infrastructure assets have an obvious attraction for SMSF trustees who are looking for long-term investment horizons and healthy yields in a low interest rate environment.”
Slattery says there are three main factors inhibiting direct SMSF investment in infrastructure. They are:
“These issues have proved an insurmountable barrier to entry in the past, but from the Association’s perspective there is no logical reason why this has to be the case.
“As we said in our submission to the Financial System Inquiry, options include offering unitised investments in smaller parcels (our recommended figure was $25,000) or infrastructure bonds. Another possibility is ASX-listed infrastructure funds. Whatever the mechanism/s, it should be remembered that SMSF trustees prefer to invest directly with total SMSF investment in managed funds now standing at only 5.1%.”
Slattery says the other attraction for SMSF trustees was the risk profile of some infrastructure assets. Although greenfield projects obviously come with a higher risk, and as such may require a form of government-backed guarantee, at least in the early stages, established infrastructure (brownfield) has a risk profile that typically sits between cash and fixed interest and property and equities.
“For trustees, particularly in the pension phase, it offers both a degree of security and potentially higher yields than what they can currently get from cash or terms deposits. Indeed, the income from this asset class could be used to fund income streams in retirement – a type of annuity.”
Slattery says investment in infrastructure would require SMSF trustees to acquire a new investment skill, but they have demonstrated with other assets such as ETFs the capacity to invest outside their traditional investments of Australian equities, property and cash and fixed deposits.
“We would expect trustees, especially in the early stages, to seek advice from an SMSF specialist if they were contemplating such an investment to ensure they fully understood the risk-reward profile of the investment.”
About the SMSF Association:
The SMSF Association is the authoritative voice for the self-managed superannuation fund sector. The Association, which represents professionals providing a range of services across various disciplines in the complex area of SMSFs, is an advocate for the highest professional standards and competence to ensure SMSF trustees always receive the best possible advice.
Contact for interviews:
SMSF Association Managing Director/Chief Executive Officer
M: 0417 898 317
M: 0409 585 979