$156b fund giant IFM fears early access to super precedent

The new head of $156 billion fund manager IFM Investors has warned an emergency policy allowing Australians to raid their retirement savings must not set a precedent for cash-strapped governments, dismissing the recent drop in super returns as a blip.

David Neal who has joined IFM Investors as chief executive after leading the Future Fund, also said his firm is prepared to spend billions of dollars on Australian infrastructure projects to help drive the economic recovery.

IFM invests on behalf of 27 industry super funds backed by major unions and employer groups. The superannuation sector is reeling from its worst quarter on record with total assets shrinking by almost 8 per cent between January and March as sharemarkets plunged. The decline was before a federal government scheme allowing out-of-work Australians to early access to super savings had opened.

Mr Neal said the recent weak performance for super funds was a “blip” in an otherwise solid system. He said the early access scheme was "perfectly reasonable" given the unprecedented circumstances of the coronavirus pandemic, but warned it should only be an emergency measure. "It would be dangerous if this became a precedent that every time the government is a little bit strapped for cash, it solved the problem by allowing members to dip into their superannuation," he said.

IFM has in recent years emerged as one of Australia biggest infrastructure investors. Mr Neal said Australia had an opportunity to attract more foreign capital after it had managed the coronavirus crisis better than most other countries.

"Australia has a really interesting comparative advantage here, potentially. We’re emerging from the crisis, from the health impact, quickly, more strongly than most countries in the world," he said.

"It shows that the country is really able to manage itself, that it’s a disciplined country. So if we can get projects following onto the back of that, I think that will mean something to international investors thinking about allocating their capital and where they want to allocate it."

Long list of projects to be built

There is a long list of infrastructure projects waiting to be built if government processes were more streamlined, Mr Neal said, including the long-awaited Melbourne Airport rail link. "We could move on that, we could start working on that tomorrow," the asset manager's boss said.

Mr Neal also called for greater government certainty around energy investing, saying unstable policy settings would push prices up. But he would not comment on whether IFM would invest in gas pipelines - a cornerstone of the government’s economic recovery plan.

"Australia has a really interesting comparative advantage, potentially. We’re emerging from the crisis, from the health impact, quickly, more strongly than most countries in the world."IFM Investors chief David Neal

Mr Neal said Australia had for years struggled with getting new projects started efficiently, and industry had to work with governments on issues such as who was carrying the risk and procurement arrangements.

"It seems to us the most powerful role that infrastructure can play is if we can unlock the traditional blockages," he said.

V-shaped recovery 'very unlikely'

Mr Neal said a sharp V-shaped economic bounce-back seemed "very unlikely," but he praised the government’s "phenomenal" job in handling the coronavirus crisis and setting up the economy for recovery.

The pandemic has put the spotlight on super funds’ money allocation to hard-to-sell infrastructure assets such as airports, after some funds wrote down the value of these assets in response to the sudden economic shock.

IFM ordinarily values its infrastructure assets on a quarterly basis, but the coronavirus crisis caused the fund to conduct an out-of-cycle analysis that resulted in writedowns of more than 10 per cent. They were passed onto super fund members in the form of lower unit prices.

Mr Neal said these out-of-cycle valuations were only used in times of extreme economic volatility, and the quarterly process would now resume.

Liberal Senator Andrew Bragg criticised super funds in March for an over-exposure to illiquid assets such as infrastructure and property, claiming funds had misjudged the risk of this asset class.

But Mr Neal said even cash could be classified as risky and highlighted the ordinarily stable and solid returns of essential services infrastructure.