What risk? Multibillion foreign investor gives Australia big tick
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What risk? Multibillion foreign investor gives Australia big tick

Canberra’s political circus is definitely embarrassing. Australian businesses regularly cry that international investors will shun Australia thanks to policy or political uncertainty. But ask the head of one of the world’s biggest pension funds whether we are a no go zone and he seemed bemused.

The $350 billion Canadian pension fund CPPI has been a long term and consistent investor in Australia - in infrastructure, real estate and technology. Mention the concept of sovereign risk and the response is - what risk?

This group invests around the world. It has to navigate real tensions in emerging markets such as the US- China trade war to say nothing of hot spots in Turkey and Argentina.

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The whole notion that Scott Morrison represents a bigger or smaller risk than Malcolm Turnbull or Labor’s Bill Shorten is pretty strange for international investment funds that need to weigh up putting money into seriously unstable regimes.

Most recently CPPI was a major player in the consortium that took at 51 per cent stake in NSW government’s privatisation of Westconnex - investing around $1.8 billion. The laundry list of its investments is long and spans more than a decade. Right now it has 11 per cent of its $C366 billion ($A390 billion) capital invested in Australia and with good reason.

Scott Morrison

Scott MorrisonCredit:AAP

"We are very comfortable here," says chief executive Mark Machin

"It’s as close as you can get to Canada in the world - a similar legal system and the predictability of regulation and (despite lots of changes of governments) it’s a place where we feel we can buy assets and hold them for the longer term because it is very comfortable business climate."

"We have invested through multiple governments and there has been a predictability of regulation and policy with respect to foreign investment and tax. We are super long term investors. We hold for the life of the assets so when are paying finely chiselled prices we want to have continuity in regulatory issues and tax over many years."

And for this the Canadians are willing to pay the price. Machin is clear enough that the Westconnex investment didn’t come cheap.

"I would say the NSW government ran a really good and robust process and got a lot of competition and a very good price," he says.

Mark Machin, president and chief executive officer of the Canada Pension Plan Investment Board

Mark Machin, president and chief executive officer of the Canada Pension Plan Investment BoardCredit:Bloomberg

Why? Because the supply of good infrastructure assets is limited particularly in the counties in which these funds want to invest.

"There is not enough supply, not sufficient predictable pipeline of opportunities around the world and a huge amount of capital is chasing it," he says.

With all that capital in pursuit assets are now looking fully valued.

Machin says it is a fabulous time for governments to raise infrastructure related capital but bemoans that most governments around the world find it difficult to get their act together, to get processes started and completed.

I don’t think we think we are in bubble territory... growth continues to come through and inflation around the world had been incredibly muted

Mike Machin

This doesn’t mean that CPPI - even as a long term investor - doesn’t concern itself with the immediate prognosis of the world markets and the world economy.

“I don’t think we think we are in bubble territory. The underlying economic growth in the US growth has been extraordinarily robust but growth continues to come through and inflation around the world had been incredibly muted," he says.

“Debt exists across governments and other areas and it has to be paid off US$500 trillion in debt has to be worked through somehow."

So here is the warning: "We shouldn’t expect double digit returns from our fund for the next few years (which means) more muted returns."

But funds like this (and our Future Fund) rely on assessing the longer term big picture.

Elizabeth Knight comments on companies, markets and the economy.

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