Australian State Seeks Out Sovereign Wealth

Australia's most populous state hopes to tap sovereign wealth funds to help raise billions of dollars to update its overstretched roads and railways amid concerns about its debt, a senior official said, The Wall Street Journal reported. The comments from Nick Greiner, the newly appointed infrastructure chief for New South Wales on the east coast of Australia, show the growing heft of government-controlled investment funds in the world's fastest-growing regions. They also show Australia's resources-based boom hasn't been shared equally by all regions of the country. The state, which includes Sydney, Australia's largest city,has more than 12.2 billion Australian dollars (about US$13.2 billion) of net debt. It is turning to sovereign wealth funds at a time when they are ratcheting up their exposure to infrastructure. The number of funds investing in infrastructure increased to 61% at the start of the year from 47% previously, according to data compiler Preqin. "Sovereign wealth funds outside Australia and the Future Fund [are] exactly the sort of players we would want to attract," Mr. Greiner said, referring to the Australian fund formed to manage retirement for public-sector employees. He said state officials will begin to approach pension funds and wealth funds overseas as well as locally. Sovereign wealth funds have grown in appeal as potential sources of capital for infrastructure projects. A paper from the Brookings Institution in March entitled "Rebuilding America: The Role of Foreign Capital and Global Public Investors," called for U.S. authorities to embrace sovereign wealth funds to fund what it described as "crumbling" national infrastructure. Tawreed Investments Ltd., a wholly-owned part of the Abu Dhabi Investment Authority, in November took a minority stake in a 99-year lease on the Port of Brisbane, Australia's third-biggest container harbor. The Abu Dhabi fund is among the world's biggest, managing an estimated $600 billion worth of assets, part of a global $4 trillion pool of sovereign-wealth capital. New South Wales, which depends on Sydney's financial-services industry and tourism revenue as key drivers for its economy, is typical of what analysts warn is the emergence of a two-speed economy in Australia, which has seen its currency surge and economy grow due to a surge in commodities demand. The state's new premier, Barry O'Farrell, in March blamed falling tax revenue in part for creating a A$4.5 billion hole in the local budget compared to previous estimates. Mr. Greiner, previously the premier of New South Wales, first plans to tap the A$70 billion Future Fund to help finance the program of public works. "We're proposing this month to talk to the Future Fund. We want them to take stakes in less-mature projects and certainly initially not- listed entities," said Mr. Greiner, who is also chairman of Citigroup's Australia unit. In its most recent quarterly update, the Future Fund said around 5% of its portfolio is invested in infrastructure and timberland. Mr. Greiner also plans to target local pension funds, which will be given the option of taking direct stakes in projects from the earliest stage. Work on roads, rail, bridges, tunnels and possibly a second airport are slated for the coming years. Mr. Greiner said he wants to draw on global models, citing British Columbia in Canada and public, private partnerships in the U.K. as methods to fund the massive works while not threatening the state's triple-A credit rating. Read more. (Subscription required.)
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