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Big super’s blueprint for the future

It’s big super’s “once in a lifetime opportunity” to build the future. But as funds look to invest in nation-building in Australia and the Pacific, they’ll want the government to share some of the risk.

In a policy document prepared ahead of a roundtable between superannuation leaders and assistant treasurer Stephen Jones last week, ASFA outlined a number of areas where Australia’s retirement savings could be put to good use for nation building. While the Australian economy has proved resilient through the tribulations of Covid-19, it’s also facing into decades of lower, slower growth, labour market dislocation, and the vast costs of the energy transition.

“As a result, there is an emerging opportunity for institutional superannuation to play an important role in the Australian economy via the deployment of capital that supports sustainable economic growth and prosperity, and enhances retirement outcomes,” the ASFA report says.

“From a macroeconomic perspective, the savings intermediated by institutional superannuation have the potential to help build Australia’s stock of productive capital, which can deliver substantial economic benefits and boost returns for members.”

But if super funds are to invest in Australia’s future, they’ll want those investments backstopped by one group that stands to benefit from them: the government. The Albanese Government has already earmarked $575 million in uncommitted funds from the National Housing Infrastructure Facility for investments in affordable housing alongside superannuation funds, but they’ll likely want the same guarantees for the big pieces of infrastructure required to turn Australia into a clean energy powerhouse, as well as the smaller, cash-burning companies that subsist on venture capital while they look to commercialise their innovations.

“Government policy settings should provide broad-based encouragement of innovation – to support the development and commercialisation of potential new technologies and processes,” the report says. “This could involve government reviewing the incentives currently in place for Australian companies to take risks with developing and commercialising new and emerging technologies, and the incentives for investors to direct funding to those companies – including in partnership with the public sector.”

While the government and super’s new nation building ambitions have attracted their fair share of controversy, perhaps more controversial will be potential investments in Indonesia and the Indo-Pacific. A delegation of super fund CIOs and Jones visited Jakarta in August to explore potential partnerships with Indonesia’s newly-created sovereign wealth fund, the Indonesian Investment Authority, and ASFA’s paper suggests these investments could also be backstopped by the government.  

“To the extent that this concurs with Australia’s broader strategic objectives in the region, the Australian Government could put in place mechanisms to offset the impact of certain market failures on the investment decisions of Australian institutional investors, including superannuation funds.

“The Australian Government could establish a form of risk-sharing arrangement with Australian institutional investors. Under such a scheme, the Australian Government, via a special purpose entity, would provide insurance for institutional investors for the aforementioned risks. Premiums charged to institutional investors would be subsidised. In this regard, institutional investors would still be exposed to ‘normal’ business risks associated with a particular project.”

Other areas that super funds might explore, as outlined in the ASFA document, include digital infrastructure, with investments in mobile transmission, cloud storage, and optical fibre cabling; supporting Australia’s aging population through health precincts and aged care infrastructure; and resilience infrastructure to mitigate the damaging effects of climate change.

“The deployment of capital by institutional superannuation investors will lean into addressing these challenges, providing support to the economy and investment returns for their superannuation fund members,” the report says. “Ultimately funds must be satisfied that investments are in the best financial interests of their members.”

“The quantum and allocation of funding from institutional superannuation, and the outcomes that the resultant investments generate, will depend in part on the prevailing policy environment. Accommodative policy settings would reduce barriers to the deployment of superannuation capital and enable funds to better account for the (largely social and environmental) externalities associated with their portfolios.”

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