SMSFA chief executive Andrea Slattery said with the government and opposition focused on how to raise the billions of dollars in capital required for Australia’s infrastructure needs, it should be looking at making this a more accessible asset class for SMSFs.
“Although the SMSF sector has nearly $600 billion in funds under management, it is effectively barred from investing in infrastructure,” said Ms Slattery.
"This is despite the fact that infrastructure assets have an obvious attraction for SMSF trustees who are looking for long-term investment horizons and healthy yields in a low interest rate environment."
Ms Slattery said one of the main factors inhibiting direct SMSF investment in infrastructure is the “high price tags that effectively rule out SMSFs, making infrastructure investment solely attractive to institutional investors”.
Illiquidity, she said, was another barrier since SMSF investors may need to trade their holdings if market conditions or financial circumstances change.
“The high entry and exorbitant ongoing management fees these investments can attract [represent] a strong negative for trustees,” she said.
Ms Slattery suggested one option for increasing SMSF investment in infrastructure is to offer unitised investments in smaller parcels of around $25,000 or infrastructure bonds.
“Another possibility is ASX-listed infrastructure funds," she said. "Whatever the mechanism, it should be remembered that SMSF trustees prefer to invest directly, with total SMSF investment in managed funds now standing at only 5.1 per cent."
Ms Slattery said investment in infrastructure would require SMSF trustees to acquire a new investment skill, but added that they have demonstrated with other assets, such as ETFs, the capacity to invest outside their traditional investments of Australian equities, property and cash and fixed deposits.
"We would expect trustees, especially in the early stages, to seek advice from an SMSF specialist if they were contemplating such an investment to ensure they fully understood the risk-reward profile of the investment,” she said.