Trump infrastructure plan gets $2.6 trillion nudge from Australia

Construction works along State Road 836 in Miami, Florida on Feb 12, 2018.
Construction works along State Road 836 in Miami, Florida on Feb 12, 2018. PHOTO: AFP/GETTY IMAGES

CANBERRA (BLOOMBERG) - US President Donald Trump's pledge to fix America's ailing roads, bridges and airports might get an unlikely boost from retirement savers in Australia.

In face-to-face talks at the White House this week, Prime Minister Malcolm Turnbull will propose using a chunk of Australia's A$2.53 trillion (S$2.63 trillion) pension savings pool to help unlock funding for Trump's infrastructure push. He's being joined on the trip by local money managers who help control the world's fourth-largest pot of retirement savings.

"There's a very bold ambition to drive US infrastructure and Australia should be front and centre in terms of project design, build, financing and management," Trade Minister Steven Ciobo said in an interview ahead of the visit.

Trump's US$1.5 trillion (S$1.98 trillion) public-works plan has hit potholes amid a lack of bipartisan support in Congress and questions over who would pay for the initiative despite his pledge of US$200 billion in federal funding over 10 years. Australian officials have pointed to their own success in selling or leasing public assets to finance new construction without incurring new debt - a concept known as asset recycling.

Joe Hockey, now Australia's ambassador to the US, was a key champion of the initiative when he was federal Treasurer and has been pivotal in promoting it in Washington. Fund managers in Turnbull's delegation of 22 business leaders will continue the push at the National Governors Association meeting this weekend.

"The key blockage in the US, which is also common across the world, is the political risk due to community concern over private ownership of what people perceive should be public assets," said David Whiteley, chief executive of Industry Super Australia - the representative body for not-for-profit funds that invest the retirement savings of 5 million Australians with more than A$224 billion under management. 

"Engagement with the US government and state governors is incredibly important to building momentum." Assets in Australia's compulsory pension savings system, known as superannuation, have increased nearly ten-fold in the past two decades. Assets aren't expected to peak for another 20 years, with estimates of the system's ultimate size ranging from A$3.5 trillion to A$5.1 trillion.

Brett Himbury, chief executive officer of Melbourne-based IFM Investors Pty, canvassed potential cross-border infrastructure deals with Vice President Mike Pence last year and joins Turnbull on this trip.

"The administration needs $1 trillion and it's unlikely that can all be supplied from the public purse," Himbury said. "So there is a growing realisation that private capital is needed." IFM, which has A$101 billion of assets under management, invests money on behalf of entities from 16 countries including seven of the top 10 US pension funds, according to Himbury.

"Part of our pitch is that this is worker's money from many different countries being used to build infrastructure in the US and helping to create jobs for US workers," Himbury said. "And we think that is a pretty compelling proposition." Still, some US states and municipalities remain wary of private ownership, even if assets are bought by not-for-profit retirement funds. Ten years ago, Chicago's move to lease its parking meters for 75 years cost the city US$974 million in lost revenue and angered voters who were left paying higher fees.

"The US is obviously free market, but many of the states still have quite socialist attitudes towards ownership of some infrastructure assets," said Jim Miller, chairman of Infrastructure Victoria in Australia's second most populous state. "Many states are pretty unlikely to change their attitudes to private ownership."