The SMSF sector should be viewed as an important source of capital for future Australian investment, both public and private.
This is according to the SMSF Professionals’ Association of Australia (SPAA), which has urged the Financial System Inquiry (FSI) to consider utilising investment in infrastructure in the SMSF sector.
Senior manager technical and policy, Jordan George, said opening up direct infrastructure investment to SMSFs could assist them in managing longevity risks, while also funding Australia’s future investment needs.
“Infrastructure investments act as an important investment class that offers a risk-return point between cash/fixed-interest and equity investments,” he said. “SMSFs are currently limited in investing in infrastructure due to high dollar threshold and the illiquid nature of the investment.”
But these barriers could be overcome by unitising investments in infrastructure projects to smaller investments, for example $25,000 and developing secondary markets.
The SPAA also raised the possibility of SMSFs participating in the financing of housing via instruments such as shared appreciation mortgages and shared equity arrangements.
Such investment would enhance portfolio construction and increase the efficiency and competition in the home loan-financing sector, it said in its submission.
And contrary to popular belief, SMSF borrowing and property investment poses no risk to the financial system because the very low level of limited recourse borrowing arrangements account for just 0.49% of SMSF assets.
These suggestions come after an announcement last week
by Treasurer Joe Hockey that he had secured the in-principle support of his state and territory colleagues for new infrastructure finance.
He proposed an asset recycling initiative, which could see the Commonwealth offer financial incentives to states and territories that sell assets and recycle the proceeds of these sales into new productive infrastructure.
The Commonwealth’s incentive will be 15% of the assessed value of the proposed asset being sold for capital recycling.
Hockey said that Infrastructure Australia estimates that at least $100 billion in commercial infrastructure assets are currently tied up on government balance sheets and could be sold.
“This partnership could help overcome the fiscal constraints governments face to increase the pipeline of projects that would improve Australians’ quality of life,” he said. “It would also provide an opportunity for Australian superannuation funds to buy Australian assets.”