INSIGHT

Report: Australian Infrastructure Investment Report 2019

By David Donnelly
Funds Infrastructure Manufacturing & Construction Private Equity Property & Development

In brief

Investor appetite for Australian infrastructure remains strong. However, to maintain our status as a leading infrastructure investment destination, we must address systemic issues that are adversely impacting the market, including cost overruns on major projects. 

We collaborated with Infrastructure Partnerships Australia (IPA) and Perpetual to examine the changing risk environment for investors.

Key takeaways

  • Australian market remains highly attractive to investors
    Overall, the Australian market remains attractive due to our strong track record of infrastructure delivery and stewardship, and the sophistication of local market participants. From our survey, 90% said they are highly likely to invest in Australia in the next two to three years.
  • Investments in 'core infrastructure' assets are becoming challenging
    The strength of the Australian market also creates challenges for investors. 45% of survey participants reported that competition for assets means new investment opportunities are hard to find.
  • As a result, investors are moving up the risk curve into ‘core-plus’ assets
    Some investors are moving up the risk curve or expanding their investment mandate to pursue opportunities in core-plus assets. This is a result of the highly competitive 'core infrastructure' market. 64% of participants showed a preference for these investments, putting them on the same level as rail or water infrastructure.
  • Government spending is increasing
    Over the next four years, Australian Governments will invest close to $200 billion in public spending on infrastructure – 70% of which will be centred in Victoria and New South Wales. The sector will come under increasing pressure as record volumes of projects simultaneously enter the delivery phase, exacerbating the market capacity challenge.
  • Not all risks in the Australian infrastructure market have an upside
    The uncertainty in Australia’s policy and regulatory settings is deterring investment. 83% of participants agreed that uncertainty in Australia's policy and regulatory settings is limiting their willingness to invest. While some risks are symptoms of a busy market or offer rewards commensurate with the risks being taken, policy and regulatory uncertainty have little upside. Governments should avoid changing the 'rules of the game' and ensure the existing rules support the continued delivery of necessary infrastructure.
  • What should the government do?
    • Short term:
      • more bespoke risk allocations;
      • less adversarial contract management; and
      • more social infrastructure.
    • Long term:
      • invite new entrants into the labour market;
      • spread projects across major cities and regions; and
      • invest in complementary projects.

In conversation

The risks characterising the investment environment currently

Characteristics of core-plus assets in the market

Steps government should be taking to reduce the risks in the investment industry