Concrete Analysis | Australia a good case study for use of private capital in infrastructure projects

Investors may be forgiven for being frightened of the unknown.

Major political shocks have heightened risk and uncertainty in the public markets. Populist developments dominated 2016 in defiance of expert predictions, setting the stage for an equally unpredictable 2017. These developments gave long-term investors reason to pause, reflect and in many cases reevaluate risk and their portfolios even as equities climbed since Donald Trump’s election in the US – a feat repeated more recently with Emmanuel Macron’s victory in the 2017 French presidential election.

Uncertainty in the equity markets has been coupled since 2008 by a consistently low interest rate environment, which limits the appeal of traditional fixed income investments for long-term investors. All this has occurred as Asia’s economies are maturing with an increasingly large pool of pension assets to manage. These circumstances have increased the appeal of real assets, particularly infrastructure, as an asset class for Asian investors.

Australia was one of the first countries to embrace private investment in critical infrastructure projects, and AMP Capital was one of the first participants, making its first investment in 1988 when the New South Wales government raised funds from private investors for the construction and operation of the Sydney Harbour Tunnel. Many more privately-funded infrastructure projects have followed, from roads to large-scale electricity transmission.

This same period has seen the privatisation of many Australiangovernment-owned assets, with gas transmission, power generation, major airports, shipping ports and much rail infrastructure now owned and operated by the private sector. More recently, partial privatisations of electricity transmission and distribution assets have featured.