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>> I think there’s been some progress; still hold true and that is that how do we... how on earth do we match the savings into the infrastructure space?
>> I mean how do you bring the two together? And I think that we have made some progress.
>> But ultimately that still is the challenge that we need to reconcile today.
>> The Port Steel that we undertook, and I do note it is up for some of the awards tonight, I think the strength of this is that it showed that social privatisation works.
>> And that was a term that I think Brett came up with from IFM rather than me, but I think it is exactly right because when the debate has gone before on should you sell assets or lease assets it’s always been about that.
>> Whereas what we are saying, well this is what we want to do if we undertake this asset sale and there is an opportunity for your super funds to play a critical role.
>> So there are 5 million Australians who now share ownership of Port Botany and Port Kembla at the same time as the government having the money upfront to put into the next project the same community that has an ownership wants.
>> And I think it’s time in the debate that we try and transcend. It’s very difficult but from a political point of view that both parties acknowledge it.
>> And I do have a quote there from Paul Howes who actually has put some thought leadership on the left hand side of the political equation saying listen, we have to acknowledge the benefits of social privatisation.
>> Michael O’Brien, the Victorian Treasurer, I mean he is already convinced and already working on this and I’m sure that he will execute it very successfully.
>> But the simple equation here is that we have to put down the political challenges and try and unite on the basis that this is the best thing for the country, this is the best thing for our state, this is the best thing for our community.
>> And if you move to Newcastle, which is where we have said listen, we want to do a long term lease of your port, but by the way, we’re going to undertake that urban renewal that you have spoken about for 25 years and made no progress whatsoever.
>> Well those days are over. We do the lease of the port and it will be done.
>> And that discussion is something that has taken over, and at the same time the super funds play a role in that, which I anticipate they will.
>> Then many Australians will still share in the ownership.
>> So social privatisation as an ownership model I think is a step forward and is something that we should embrace.
>> At the same time I think we should be looking at the allocation and the allocation across our pension funds and when you look at the numbers it’s been spoken about and commentated a bit, that our allocation to equities is pretty high.
>> And you can see where we sit, pretty much at the top of the tree, if not just below the US.
>> Now there are many reasons for that but from our point of view, when you look at what other countries are doing - Denmark and the Netherlands in particular - they actually have restrictions.
>> Once you get to a certain age you have to start moving out of the more volatile and high growth investments to get more into annuity streams.
>> And that is something I think that a debate that is coming in this country, and why is that important?
>> Well I think it’s important because if you started to shift out of equities and moved it towards infrastructure, well there’s a big opportunity for additional capital to come forward.
>> I mean at the moment in terms of our super funds, about 6% sits in infrastructure. If you moved it to 12%, so a 6% reduction in equities would be still right near the top of global position in terms of our equities.
>> That’d be an extra $108 billion that we could put to infrastructure work across the country, and I think that’s something in terms of the debate that we should be considering.
>> Obviously individual fund managers make their own decisions, their own allocations but it seems to me that there might be an opportunity in terms of allocations going forward as the pipeline starts to develop.
>> The other point is product and people in the infrastructure space are asking for product, product, product. You show us how can we invest further, where is the next opportunity for us to put our funds, particularly in this space.
>> And the argument I’ll put that I think that we need to start to having is it’s potentially in the debt space.
>> If you look at debt and where it sits at the moment you have --close to 70% is provided by Aussie banks. So Aussie banks basically dominate the debt market.
>> A very limited amount, which is obviously in asset backed and capital markets, but the simple point is that debts are the ones that dominate the market.
>> Now that’s important because what banks are happy to do is they’re happy to lend at 5-7 years. I mean that’s where we find ourselves at the moment.
>> So you have these infrastructure assets, long life assets that really, from a debt point of view, only get out to about 5 or 7.
>> So in terms of risk the refinance starts to come into the cost and that is one of the impediments I think in the market.
>> So the thought that I want to start provoking is well is there a potential to start looking at debt markets, capital markets to link it with super funds and to provide a place in lengthening that maturity, starting to match the maturity level.
>> Because if you look at that bond curve there, a government bond curve, you start to see that you go to about 10 years and then there’s almost nothing; it starts to completely fall away.
>> So there’s an opportunity in that for governments to play a role and we can start to lengthen our maturities to get out to a position that there are benchmarks out along the curve.
>> But I think tonight I’d be saying is that an opportunity for our super funds. Is there an opportunity to start to look at the debt profile and how that can play a role in funding some of the significant infrastructure space which at the moment is immense.
>> You can see in terms of returns, whether it be debt or equity -- I mean the black line is the unlisted infrastructure and really since the last 10 years it’s almost outperformed equities, or it really has on a number of occasions.
>> So as an asset class, whether it be debt or equity, it has performed very strongly and I think that that provides an opportunity, I mean as we start to look at allocations, as we start to look at new products and certainly from my point of view it is a discussion that we need to have for the next step in this debate. 40 00:06:e3 --> 00:06:49 >> So tonight I’m very happy to confirm that Joe Hockey and I will be bringing together some of the top minds in the superannuation sector, in the infrastructure space and the policy makers, together with Matteas and Warren who’s here, and posing some of these questions.
>> Because it’s too important that we don’t ask them and we need to, again, consider the ideas that might come from this group, and whether it be new products for super funds and the infrastructure debt and hybrids, those sort of things that could be new products in the infrastructure space ---
>> --- what the regulators say about the debt proposals, taxation considerations. I mean we have to consider -- I mean the equity focus has obviously been led by dividend imputation to a point and at the same time are the things that we need to consider on the debt side for the infrastructure space.
>> Looking at deepening the capital markets and obviously trying to take out that 5-7 year risk, and again an ongoing discussion on what is the best practice that we are seeing across the country.
>> What is the best practice that we are seeing around the world and how can we import that here and do that in a structured and formal way, and whether on the allocation side, where there is an opportunity to reallocate away from the equities space.
>> So Joe Hockey and I will be doing that in the middle of the year. We look forward to -- obviously people in the room will be part of that process. But don’t just limit there.
>> As part of this debate moves forward I would welcome any ideas or approaches that you might have because the topic is too important not to succeed.
>> So in conclusion, this was made back in 2010 by IPA and I think it stays with us today, and that is that a business as usual scenario will not deliver the level of investment required to bridge the infrastructure deficit.
>> I certainly think that, yes, we are facing big challenges but I strongly argue that in NSW we have made a significant step forward to those challenges.
>> But there is still more to do, and I think collectively with those in the room, with those that participate in the forum more formally in the middle of the year ---
>> --- but broadly I strongly believe that we can not only tackle that deficit, we can transform this state, transform this nation and certainly infrastructure will be a critical piece of that and it starts tonight, but it starts collectively.
>> So I thank you for the opportunity to speak tonight and I really look forward to your participation in making this state and this country as great as it possibly can be. Thank you. [APPLAUSE]