Australia: Linking superannuation funds to Australian infrastructure projects

Last Updated: 11 October 2013
Article by Owen Hayford

Key Points:

Most PPPs aren't attractive investments for superannuation funds. Governments and other project sponsors need to structure infrastructure investment opportunities in a way which is attractive to superannuation funds in order to attract them as investors.

Australian superannuation funds are crying out for opportunities to invest in Australian infrastructure. At the same time, Australian governments are keen to tap into superannuation funds to help bridge Australia's infrastructure gap. So why isn't it happening?

Superannuation funds exist to provide retirement income for their members. They need to make a return on their funds to do so. Superannuation funds will only invest in a piece of infrastructure if the risk/return equation makes sense. Governments and other project sponsors need to structure investment opportunities in a way which is attractive to superannuation funds in order to attract them as investors.

Is a PPP model suited to superannuation funds investors?

When Australian governments want the private sector to invest in a new infrastructure project they will often develop the project as a public private partnership or PPP. Australia has a long and successful track record in attracting private sector investment in new infrastructure projects via the PPP model. But is the PPP model well suited as an opportunity for superannuation funds to invest in infrastructure?

While there is no doubt that infrastructure as an asset class is an attractive investment opportunity for superannuation funds, most PPPs are not attractive investments for superannuation funds, particularly at the development stage. There are many reasons for this, the principal ones being:

  • PPPs are too risky, particularly those where investors take demand or patronage risk;
  • construction risk is also a concern for superannuation funds, as is the high level of refinancing risk associated with Australian PPPs;
  • PPPs are generally too highly geared – a characteristic which driven by the desire of government to minimise its financial contribution to a PPP project by minimising the project's financing costs;
  • because of the low levels of equity relative to debt, the "ticket size" of equity investment opportunities in a PPP is usually too small to be attractive to superannuation funds;
  • high bidding costs and the lack of a pipeline of PPP deals; and
  • restrictions on the transfer of equity in PPP projects, which adversely affects the liquidity of the investment.

Although PPPs and PPP bidding process can be adjusted to:

  • improve the risk/reward equation (for example by structuring the PPP as an availability payment PPP where government takes the demand risk, as is proposed for the East West Link in Melbourne);
  • reduce the bidding costs; and
  • relax restrictions on equity transfers,

most PPPs will continue to struggle to attract equity investments from superannuation funds at the development stage, prior to construction.

The Canadian experience also bears this out. Canada has a well-functioning PPP model, and yet its pensions funds are not major investors in it, despite Canadian pension funds being recognised as among the most significant and expert investors in infrastructure in the world.

The sorts of adjustments to the PPP model just mentioned, particularly government taking more risks, can also undermine the business case for doing the project as a PPP. If the risk transfer to the private sector under a PPP is no greater than that achievable under a publicly funded delivery model, government will usually achieve a better value for money outcome by adopting a publicly funded delivery model, and avoiding the higher cost of private sector finance, as is proposed for Stage 1 of the WestConnex project in Sydney.

The delivery of more infrastructure under this sort of delivery model, where government funds the construction of the infrastructure facility and then sells the right to generate tolls or other revenue from it, after construction is completed and the revenue stream has been proven, will create more infrastructure investment opportunities which meet the investment criteria of superannuation funds.

Similarly the sale of existing publicly owned infrastructure assets would create attractive infrastructure investment opportunities for superannuation funds and at the same time enable the public capital invested in such assets to be "recycled" and applied to the development of new infrastructure assets.

What about the debt piece in PPPs?

The debt piece in a typical PPP is much larger, and less risky, than the equity piece. Moving forward, there may be an opportunity to attract superannuation funds to provide debt finance to PPPs, particularly if a deeper market for corporate bonds can be established in Australia.

If the Federal Government were to raise debt for the purpose of investing in infrastructure, and did so by issuing long-term bonds, this would help create a pricing benchmark for privately issued bonds, and assist in the development of the corporate bond market.

Improving the deal pipeline

Superannuation funds continue to call for a deeper, more certain infrastructure investment pipeline, to enable them to invest in the people needed to assess and bid for infrastructure projects as they come to market.

Government's ability to improve the pipeline of new infrastructure projects is largely a function of its capacity to fund the projects. There is plenty of private sector finance available to finance the construction of infrastructure projects, but that finance needs to be repaid by someone. Politicians would love to announce an extensive pipeline of new projects, but Australian governments don't presently have the sources of funding required to repay that finance.

There are three main sources of funding for new infrastructure:

  • taxes;
  • user charges (eg road tolls); and
  • asset sales (recycling of capital).

To improve the pipeline, superannuation funds, government and other industry participants need to convince communities that the benefits to communities from better infrastructure funded from assets sales, or user charges, outweigh the additional costs and risks.

You might also be interested in...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.