IFM Investors eyes 'nation building' accord

IFM Investors chief executive David Neal, the former head of Australia’s sovereign wealth fund, says the $700 billion industry superannuation fund sector is ready to be a part of the “nation building” accord propelled by Scott Morrison in the wake of the coronavirus pandemic.

Mr Neal, who left the Future Fund in February after a 13-year stint, also questioned whether he would ever see higher interest rates again, warning it could be a situation where interest rates are "lower forever".

Speaking first time since taking the reins of the $156 billion asset manager earlier this year, Mr Neal said there was a “massive opportunity” for private capital to partner with business, unions and the government to identify, design and, ultimately, construct national business projects to boost jobs and the economy.

“I’ve been incredibly impressed with the way the government has brought together this spirit of accord, and that creates some fantastic opportunities," Mr Neal told The Australian Financial Review.

"The industry super movement wants to play a role in that."

While financial markets are continuing to confound investor and analyst expectations, Mr Neal said money managers were trying to account for massive government prorgams, weighed up against an unknown economic collapse.

At a recent staff town hall, Mr Neal said rather than a situation of lower interest rates for longer, investors were now faced with the prospect of a situation where “rates are lower forever”.

“I don’t know if I will ever see higher interest rates again in my career,” Mr Neal said. “The globe has a big hole that it needs to dig itself out of. Value adding is more important than ever.”

IFM Investors, which is co-owned by 27 union- and employer-backed industry funds, was established about 1990 when super funds created a Development Australia Fund to invest in public Australian companies and infrastructure assets. It has since grown into a global powerhouse managing $70 billion of infrastructure assets, running one of the country’s largest equities trading operations, and is now one of the nation's biggest corporate lenders.

It also owns major Australian assets, such as poles and wires company Ausgrid, airports in Melbourne, Brisbane and the Northern Territory, Southern Cross Station in Melbourne and ports in Sydney, Wollongong and Brisbane.

According to Mr Neal, there are "no constraints" on the capital available to fund good projects as the economy emerges from its brief hibernation.

Months of volatility

The Prime Minister this week called on businesses and unions to sign on to a new accord-style compact with the government to negotiate an overhaul of the industrial relations system to maximise productivity and wages. Both federal and state governments have been examining major and minor infrastructure projects as bureaucrats line up stimulus to support jobs as the economy emerges from the enforced shutdown to limit the spread of COVID-19.

Although the government has been at odds with the industry fund sector over its $30 billion early release access scheme, which has so far paid out almost $15 billion to more than 1.5 million workers who have been retrenched or had their hours reduced, Mr Neal said industry funds had a single focus on member outcomes during the crisis.

“The industry fund model, right the way through its structure, is absolutely focused on the member. I’ve been really impressed with that through all my conversations with shareholders. That feeling of putting the member first is very strong,” he said.

The Australian sharemarket this week exited bear territory, clawing back pandemic-inspired losses to less than 20 per cent, following similar moves on Wall Street, Germany’s DAX, Japan’s Nikkei, South Korea’s Kospi and Hong Kong’s Hang Seng, as investors attempt to see through the economic carnage triggered by government shutdowns.

Mr Neal said the bullish sharemarket moves were “very peculiar” and reminiscent of the global financial crisis more than a decade ago.

An engineer by training, Mr Neal said there were two strong forces pushing at either end, which would result in months of volatility to come.

“We’ve got huge and long-lasting stimulus-type packages trying to address the huge and long-lasting economic impact stemming from this pandemic. Who can possibly know which one of those massive forces will be largest and longest lasting – the market is doing its best right now to try and figure it out,” Mr Neal said.

“This is the time for making long-term investments and making long-term decisions. It’s not a time for trying to predict the market. Big infrastructure projects are a part of that.”

IFM Investors, which leads the AirRail consortium including Melbourne Airport, Southern Cross Station and Metro Trains, has been pushing the Victorian and federal government to build a $7 billion rail link to Melbourne Airport, in which the fund manager is a shareholder.

Skilled spotters of 'great opportunities'

While the Future Fund has slightly more funds under management than IFM, Mr Neal said he was impressed by the asset management capabilities of his new employer. While the Future Fund doles out contracts to money managers and asset managers, IFM has the skills to siphon value out of assets during challenging times, he said.

“IFM has the skills and the depth of team to actually work closely with governments to identify great opportunities and design solutions to those opportunities."

Mr Neal said IFM, which invests on behalf of its super fund owners and a range of institutional and sovereign investors, was expecting to finish the year with more clients than it began 2020 with.

He also said IFM had not suffered any major redemptions out of its illiquid portfolios during the crisis.

While IFM reduced the value of some of its Australian infrastructure assets by some 8 per cent on average in March as markets crashed, Mr Neal said each infrastructure asset was performing differently.

“They’re highly linked to the economy. They are essential monopoly assets that are exposed to the health of that economy.

“The nature of that asset depends on the environment it is in. Many of them have struggled. But if you drill down into it, if it’s a toll road that carries trucks rather than commuters, that’s held up rather well because trucks are still on the road and supermarkets need to be restocked.”