Asset recycling and infrastructure: How to fund priority projects - Matt Capon

But these are only a handful of the choices available to us.

An outcomes-focused approach recognises that new infrastructure is just one tool among many. We can maintain what we have, renew ageing assets, adapt or repurpose existing infrastructure, consolidate services, change operating models, release capital from underperforming assets, or transfer ownership where it creates greater value. In some cases, the answer will be to build something new. In others, it won’t.

The objective is not to create more assets. The objective is to create better outcomes.

This requires us to expand our thinking beyond traditional asset management and incorporate investment management. While asset management helps us understand our assets and how they should be operated, maintained, and renewed, investment management helps us evaluate the choices we have, and how scarce capital can be deployed across an entire portfolio to achieve the greatest value.

Bringing the two together brings clarity to enable trade-offs, allocate resources, and invest where the greatest impact can be achieved, without requiring a perfect solution. That means we can see momentum on priority goals sooner than under a traditional approach, where full funding would be needed before progress is made. Importantly, it creates a stronger connection between the performance of physical assets and the outcomes they deliver for communities.

Infrastructure decisions should not start with assets. They should start with outcomes we are trying to achieve and then work backwards to determine the best intervention.

Different countries have used different mechanisms to improve outcomes, but the lesson is remarkably consistent: start with the desired outcome and then choose the intervention that best delivers it.

The New South Wales Government needed to invest in high-priority infrastructure projects to improve the state’s economic growth and productivity but lacked the funding to do so. They selected asset recycling as a lever to release capital and fund new priority assets. Restart NSW is a closed-loop fund that since 2011 has redirected more than A$35 billion from sold assets into priority projects - spread across infrastructure sectors, with 30% mandated to be spent in the regions. Critically, its success was underpinned by two things – strong governance and assurance, and a long-term strategic view. Projects funded had already been deemed a priority through 10-year capital investment plans, agency-level asset management plans and a whole-of-government pipeline. Investments were independently cost benefit-tested, with Infrastructure NSW holding an independent assurance role.

The UK adopted a different approach to generate more from their collective assets and create economic growth by unlocking more land for new homes. The One Public Estate began in 2013 and brought together local government agencies with central government to support locally led partnerships aimed at kickstarting regeneration and transforming public service delivery. These partnerships combined land and building assets traditionally managed by several different public entities (councils, NHS, emergency services and education) into a portfolio, enabling the release of surplus land for housing, regeneration and commercial development; improving public services through co-location services and significantly reducing operating costs.

To date, the programme has unlocked more than 93,000 job opportunities, released land for more than 55,000 homes, raised more than £800 million in capital and reduced operating costs by more than £211m.

Norway chose to reinvest oil profits overseas, creating a US$2.2 trillion intergenerational fund that has turned a windfall into a permanent source of wealth for the country. Two factors have made the fund so successful: a defined governance structure and a long-term horizon. To ensure benefits in perpetuity, only the fund’s expected long-term real return (currently estimated at around 3% per year) can be spent rather than drawing down the principal. Although this represents only a small part of the fund, it effectively amounts to almost 20% of the government budget.

While each country chose different tools, they were all underpinned by the same idea - infrastructure success is not determined by how much capital you have. It is determined by how well you steward what you have.

For Aotearoa New Zealand, that may be the most important infrastructure lesson of all. We’ll never have all the capital we need to deliver our infrastructure wish-list, so what we need to do is extract greater value from the assets, resources and opportunities we already have.

It’s easy to focus on the challenge ahead of us - a small country with a significant infrastructure deficit, ageing assets, and constrained public finances. A stewardship approach allows us greater control of our future. It’s clear we cannot continue as we are. While we cannot afford to default to building new every time, we can leverage the full toolkit available to us across both asset and investment management.

To do that, we need to adopt a long-term view: defining outcomes that transcend political cycles and establishing a robust governance framework to hold ourselves to account. We need to balance costs, service, and future needs; and evaluate the opportunity costs of our decisions - understanding that a dollar spent in one place is a dollar that cannot be spent somewhere else. It might also mean making difficult and, at times, unpopular decisions about what we keep, what we let go of, and how we prioritise scarce resources.

Most importantly, we need to take into account the value of time. Perfect solutions can be lengthy to develop and costly to deliver, significantly delaying, or in some cases completely removing the benefits we expect, so our focus should be on how we can deliver community benefits as early as possible. An okay solution delivered on time is always better than a perfect solution delivered late.

If we do this well, we will see benefits like faster decision-making; smaller, less complicated and more affordable projects or staging of more ambitious projects; and genuine reflection and debate on whether something new is required or whether there is another pathway.

Imagine those New Zealanders of 2100 looking back at the choices we made.

They won’t ask how much infrastructure we built.

They’ll ask whether we had the courage to make thoughtful decisions, whether we protected and enhanced the assets entrusted to us, and whether we left them more opportunity than we inherited ourselves.

The next generation won’t judge us on what we owned.

They’ll judge us on what we achieved.

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