Unlisted infrastructure an untapped well for SMSF investors
New research has found that SMSF investors have been missing out on the return potential of having a broad range of unlisted infrastructure investments included in their portfolio.
A 15 per cent allocation to a highly diversified infrastructure portfolio can increase average annual SMSF performance by 45 basis points and provides better capital protection in a downside scenario over a 20-year time frame, according to research from the Infrastructure Partners Investment Fund (IPIF).
For example, IPIF pointed out that if two investors started out with $100,000 and one has 15 per cent of the portfolio allocated to a highly diversified portfolio of unlisted infrastructure investments, then in 2040, that investor would be better off by $45,000 with a total portfolio value of $580,000.
By comparison, the other investor without a diversified unlisted infrastructure portfolio would have $535,000.
Zero SMSF investment in unlisted infrastructure
However, a December 2018 report from the Productivity Commission found that SMSF investment in unlisted infrastructure remains at zero, compared to a variety of industry funds of which allocation ranges between 5 and 15 per cent.
IPIF noted a range of factors have made Australian unlisted infrastructure out of reach of SMSF investors and been limited mainly to large institutions.
In particular, it noted that the Australian unlisted infrastructure class is a large-scale investment, has limited deal flow, has a lack of experts and is a scarce investment vehicle.
Speaking at a media lunch event in Sydney yesterday, IPIF chief executive Nicole Connolly said wealth management firms, financial planning groups and SMSF advisers haven’t really got the expertise and bandwidth to be able to do the type of research that it has done.
“This is the type of research that has been done with the industry funds and so forth, so we’re now providing that research to them,” Ms Connolly said.
“Yes, we’ve got a vested interest, but in terms of our own backgrounds — manager research, asset consulting, portfolio construction research — the data we’ve used is all verified. They can look at it and feel confident that there’s no bias in terms of the work we’ve done.”
IPIF chief investment officer Jonathan van Rooyen said it’s understandable why unlisted infrastructure is an asset class that has been kept a secret from Australia’s 600,000 SMSFs in the past.
“They haven’t had this research that we’re talking about now, where they are now actually looking,” Mr van Rooyen said.
“That’s why we say it’s unlocking the secret because it’s the secret for the industry funds. We understand that. It makes sense that it’s really clever and strategic.
“But it’s actually showing for the financial advisers that this is an extraordinary asset class which has got a real, meaningful benefit for that retired teacher.”
Adrian Flores is the deputy editor of SMSF Adviser. Before that, he was the features editor for ifa (Independent Financial Adviser), InvestorDaily, Risk Adviser, Fintech Business and Adviser Innovation.
You can email Adrian at [email protected].