Local super funds’ infrastructure pursuits a model for Asia

Mark Konyn

By

12/01/2018

OPINION | Commentators like to talk about a glut of Asian savings, but what we need to recognise is that there has been a dearth of Asian investment opportunities to serve as a home for those savings.

Today’s domestic Asian investment options are limited, with many Asian markets lacking the depth and maturity to service the region’s growing appetite for assets. In this landscape, where will investors find the region’s next scalable, secure opportunity?

The most recent Asia-Pacific Economic Cooperation Finance Ministers meeting and CEO Summit, which took place in Vietnam, identified investing in infrastructure as crucial to APEC countries’ growth. Ministers touted the importance of maintaining investment in infrastructure and diversifying the sources of infrastructure funding.

Representatives of the public and private sectors agreed they would like to see greater private sector involvement in infrastructure investment in APEC member economies, which bodes well for the development of infrastructure as an asset class across the region.

These are important developments. The Asian Development Bank, Organisation for Economic Co-operation and Development, G20, McKinsey & Company and others have now recognised a large and increasing global infrastructure gap estimated at more than US$8 trillion ($10.2 trillion), which is the result of two decades of under-investment at home by Asian economies, with the exception of China.

AIA has long been active in the infrastructure asset class. About 15 per cent (US$20 billion) of our total fixed income and equity investments are invested in infrastructure-related sectors.

Infrastructure, super a good match

Infrastructure development represents an ideal choice for life insurers and pension and superannuation funds, because long-term infrastructure assets are a good match for long-term insurance and pension liabilities. This creates a natural home for Asia’s famous glut of savings.

It also presents a genuine alternative to deploying Asian savings into low-yielding bonds in the US, Japan and Europe. In addition, it will reduce the risk of the financial system coming under stress, by putting the stock of savings into productive investment opportunities that have a longer-lasting impact on the real economy.

Finally, deploying capital into sound infrastructure investment projects would narrow the large Asian protection and pension gap.

Another 100 million households will enter the ranks of the middle class (defined as annual income above US$10,000) in just the next three years in Asia. Meeting the demand from Asian middle-class households for life insurance and pension products, while financing sound infrastructure investment, would propel Asian economic development to the next level and improve people’s living standards from generation to generation.

The savings glut could then be applied productively, with a continued focus on long-term outcomes.

Export the Australian model

The evolution of the Australian super industry is exemplary. The creation of long-term pools of capital created a demand for long-term assets. This took the form of the development of infrastructure as an asset class, where Australia is a world leader through the fulfilment of public private partnerships.

Asia is ideally placed to adapt the Australian model and mobilise insurance investments into infrastructure assets, thereby creating new means to tackle the looming and potentially troubling dearth of domestic investment.

We encourage our industry peers in Australia and across Asia to engage in this effort and help safeguard the financial system from future shocks while improving the economies across the region.

Dr Mark Konyn is group chief investment officer for AIA, a Hong Kong-based life insurer with US$149 billion under management.