A report from asset manager IFM Investors, “Revitalizing US infrastructure: The Pension Capital Advantage,” proposed federal taxes and several other reforms to expand the pipeline of investable projects and attract long-term pension capital investment.
The report, released this week as Australian superannuation fund leaders are in the U.S. for a summit presented by the government of Australia in partnership with the Macquarie Group, providing a platform for super funds to seek out global investment opportunities. Leaders and institutional investors will travel to San Francisco, Washington and New York.
“The U.S., like most developed nations, faces a clear challenge—infrastructure needs are growing faster than the public funding needed to support them. U.S. and Australian pension funds can be part of the solution,” said David Whiteley, IFM Investors’ head of global external relations, in a statement. “Australia is home to one of the world’s fastest-growing pension capital systems.”
The U.S. faces an infrastructure funding gap of $3.7 trillion through 2033, according to an estimate from the American Society of Civil Engineers.
“There is a generational opportunity for U.S. state and local governments to partner with investors of Australian and American pension capital—including through shared ownership and governance arrangements—to build the infrastructure that Americans will rely on into the future,” Whiteley’s statement continued.
Australian super funds have already invested $29 billion in infrastructure across the U.S., with total infrastructure equity investment projected to reach almost $67 billion by 2035.
IFM Investors, a global investor owned by 15 Australian pension funds and U.K. pension fund Nest [National Employment Savings Trust], suggested U.S. states should partner with investors of pension capital for asset recycling.
“Asset recycling can provide a way for state and local governments to monetize existing (brownfield) infrastructure—like roads and airports—and can provide an injection of funding they can reinvest in new assets like schools and hospitals,” IFM’s report stated.
According to the asset manager, this model would benefit from the knowledge and technology transfer that experienced infrastructure investors can bring to enhance asset quality.
It also recommended the U.S. government provide incentives for states and municipalities to recycle assets through a pilot infrastructure investment incentive grant program. Such a program “would encourage state and local governments to accelerate a program of asset recycling through incentive payments (time-limited and budget capped) that are earned once states successfully attract private investment in brownfield assets and redeploy that capital,” IFM’s report stated.
IFM also suggested regulatory reform to allow investors to retain existing tax-exempt debt issued as part of public-private partnerships. Under current regulations, U.S. state and local governments are required to repay any tax-exempt debt sold for infrastructure assets when entering into a P3 arrangement for the asset.
The asset manager also recommended accelerating amendments to U.S. tax law to allow the use of new tax-exempt debt to acquire P3 concessions and unlock additional capital for investment in U.S. infrastructure.
“This blueprint outlines straightforward reforms to unlock pension capital for long-term infrastructure investment,” Whiteley stated. “With the right policy settings, pension capital can play a major role in modernizing America’s infrastructure, delivering for U.S. communities and for the long-term retirement savings of working people in both Australia and the U.S.”
A version of this article originally appeared in our sister publication, Financial Standard, which, like CIO, is owned by ISS STOXX.