The $2.3 trillion Australian superannuation industry’s apparent extreme lack of interest in investing in agriculture is to be the focus of a parliamentary inquiry.
The House of Representatives Standing Committee on Agriculture and Water Resources has launched an inquiry into the barriers to increased investment by superannuation funds.
It is calling for submissions from the superannuation industry, agribusiness and the wider farm sector on what hurdles currently exist restricting capital investment in farmland, agriculture infrastructure and farm sector investment businesses, and where Canberra might be able to assist.
Committee chairman and West Australian Liberal Member for the big rural electorate of O’Connor, Rick Wilson, fears the farm sector is in danger of being left behind because of a lack of investment momentum.
It’s quite an anomaly to have overseas funds keen to invest in agriculture here, but our own superannuation industry seems reluctant
“The agricultural sector in Australia needs much more investment if it wants to remain competitive, and the superannuation industry is an obvious source,” he said.
“Only about 0.2pc of the $2t-plus in assets managed by Australian superannuation funds are in agriculture – an extraordinary situation.
“It’s quite an anomaly to have overseas sovereign wealth funds and private equity groups keen to invest in agriculture here, but our own superannuation industry seems reluctant, despite having so much money to manage.”
The Australian superannuation system is one of the world’s largest pension schemes.
Last financial year alone the value of assets under management by the local industry grew 10pc to top $2.3t, making some of our funds among the world’s biggest superannuation businesses.
Mr Wilson hoped his committee, which wants initial submissions by June 22, could find out how more investment in agriculture may be “encouraged”.
What’s being investigated?
It will be looking into regulatory requirements imposed on superannuation funds by the Australian Securities and Investment Commission, the Australian Prudential Regulation Authority, or other relevant regulators which may act as a barrier to superannuation fund interest.
The committee will also consider if information required by superannuation funds in order to invest in Australian agriculture is readily available, and what extra statistical performance reporting is necessary.
Other practical barriers to investment or potential incentives will also be explored.
Mr Wilson did not want to pre-empt the inquiry’s findings, but he was curious to explore if, for example, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) could better tailor its forecast and analytical research reporting to meet information demands of investment industry analysts and investors.
He questioned if there were areas where government rulings or industry regulations were dampening investment activity.
Farming needs capital
“As a farmer myself, I’d love to see more capital injected into the industry,” he said.
“We are a very capital intensive industry, but we’re also very much capital-constrained in the farming community – and we’re getting older.
“Next generation farmers need to access to capital to grow their businesses, or lease, or manage properties which might be owned by outside investors.”
The topic of superannuation fund investment appetite for Australian agriculture has attracted considerable discussion at industry issues forums in recent years, particularly at this month’s Beef Australia.
Australian funds must, by law, have money immediately available when a superannuate retires, taking the lot in one hit,
When quizzed on his thoughts Rural Funds Management managing director, David Bryant, told a Beef 2018 panel session Australian pension industry “accumulation” funds were less enthusiastic to commit to long-term farm sector investments because they needed a significant liquidity buffer.
Super liquidity crunch
“Australian funds must, by law, have money immediately available when a superannuate retires or opts to move pension funds, taking the lot in one hit,” he said.
“That compares with the situation in North America where the Harvard Endowment Fund, or the Canadian pension groups we currently see active in Australia, don’t have the unpredictability of the liquidity requirement to which our industry is bound.
“They operate on defined benefit outcomes which they can work out over 20 or 30 years.
“It’s the big difference. They don’t need so much week to week liquidity built into their investment strategies.”
It doesn’t help that there haven’t been many stand out performers from the agricultural sector listed on the ASX.
Agribusiness head with property marketer CBRE, Danny Thomas, noted the fluid nature of Australian super fund investment and the predictability of returns from real estate and infrastructure assets made that class more attractive to investment managers.
“They’re 20 or 40 years ahead of us in ag because they’ve got long track records with investors and familiarity on their side,” he said.
“It doesn’t help that there haven’t been many stand out performers from the agricultural sector listed on the ASX.
“The ASX is the first place investors go to when they want to get a barometer on the financial performance of any sector.”
Mr Wilson said the decision to hold a parliamentary inquiry into superannuation investment in agriculture had originated from issues raised by the Australian superannuation industry itself.
The need for capital to support agriculture’s burgeoning market opportunities was clearly a theme which interested more than just farmers.
He was, however, sceptical of investment industry claims about the need for caution when putting money into farming investments because it posed a risk to a fund’s liquidity requirements.
“There are trillions of dollars out there in the super pool,” he said.
“I don’t really think portability is really such a big challenge to putting a few billion more into agriculture.”