A proxy war on proxy advice

In his final speech to the Australian Council of Superannuation Investors (ACSI), Ian Silk defended the organisation against all comers. But the Morrison Government is unlikely to relent.

“To be prudent stewards of capital and to act in their members’ best interests, investors must remain focused on ESG issues in their portfolios,” Ian Silk said in his last speech as president of ACSI (July 21). “The government proposal to make super funds independent from a proxy adviser – read ‘ACSI’ – is counter to this.”

That speech has become more important in the weeks that have passed since its delivery with the announcement of the Standing Committee on Economics’ new “Inquiry into the implications of common ownership and capital concentration in Australia”. While the inquiry is supposed to examine the competitive dynamics of Australia’s markets in the time of mega-funds, some within the superannuation industry see it as a continuation of the proposed proxy advice reforms – a proxy war on proxy advice.

Two of the five terms of reference for the new inquiry would seem to capture the activities of proxy advisers: the influence common ownership has on investment decisions and market behaviour; and the changing influence between individual investors and small funds compared to large funds. Standing committee chair Tim Wilson told this masthead that he expects some overlap with the proposed reforms, and believes that, when large investors are “operating collaboratively through proxy advisers”, their common ownership could be as high as 30 per cent.

All of that suggests that at least one of the targets of the committee will be proxy advisers themselves. New data from Rainmaker that shows that the share of the ASX owned by large super funds is actually decreasing as funds look overseas to avoid concentration risk lends credence to that theory.

While there’s been hardly a peep from Treasury since it released its proxy advice consultation in April, that doesn’t mean that it’s gone away. ACSI itself faces an existential threat under the reforms, which would require proxy advisers to be independent from their clients, and the new inquiry could come as part of the classic one-two punch.

“ACSI helps super funds be more efficient by pooling resources to ensure they are comprehensively and independently informed,” Silk said. “The government’s proposal would ultimately undermine the financial outcomes for superannuation beneficiaries by rendering this system less effective,” Ian Silk said. “Super funds are required by law to act in the best financial interests of their members and through ACSI membership, they are doing exactly that,” Silk said.

Lachlan Maddock

Lachlan is editor of Investor Strategy News and has extensive experience covering institutional investment.