A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
Frydenberg’s proxy raid is pure politics
Treasurer Josh Frydenberg has sidestepped the Senate to push through controversial reforms to proxy advice, casting the future of the Australian Council of Superannuation Investors (ACSI) into doubt.
The reforms were pushed through using regulations powers in late December, at a time of year when much of the financial press is winding down and after the last sitting day of the Senate. In the context of the super wars, it represents a daring raid under cover of darkness that could well cripple the voice of big super.
The reforms, which will commence on February 7, will require proxy advisers to hold an AFSL and provide their advice to companies on the same day they provide it to their clients. Perhaps more consequentially, they will also be required to be independent from the groups they advise: a development that could well destroy ACSI, which represents and is owned by 34 domestic and international institutions.
“The government’s reforms to proxy advisers may not please everyone, but that was never the intention,” Frydenberg wrote in an op-ed for “The Australian Financial Review” late last year (December 22). “Their purpose is to increase accountability and transparency in what is an influential and highly concentrated industry.
“Despite the hyperbole from some, when viewed objectively, these are measured and sensible reforms that recognise the oversight of the sector has not kept pace with its influence. They ensure a level of transparency and accountability that is now expected in a largely compulsory system.”
It will be hard to avoid perceptions that the reforms are politically motivated. ACSI is a vocal participant in the climate and governance debates through its engagement efforts, and was highly critical of Rio Tinto’s then-CEO Jean-Sebastien Jacques in the wake of the Juukan Gorge debacle and AMP’s decision to appoint Boe Pahari as CEO of AMP Capital.
In April 2021, ACSI also announced that it would recommend voting against individual directors where companies had fallen short on their climate change targets in a move likely to be unpopular in a market skewed so heavily towards pollutive industries such as mining and energy. Those changes come into effect in 2022.
The super funds that own ACSI have also been cautioned to avoid the debate on national infrastructure projects and climate change by superannuation minister Jane Hume, who in 2020 said “some of these funds have got very big and very influential and they seem to forget their job isn’t to rebuild the economy or create jobs or reframe the climate debate or require industrial relations changes at companies they invest in.”
The reforms then look like simple reactionary politics, meant to reduce the influence of Australia’s increasingly powerful superannuation sector. Little evidence was offered to support their necessity; even less was given to justify using regulations powers to push them through. Submissions to Treasury about the process were not made public until recently, and the vast majority of them question the need for the reforms.
“There is no rationale provided in the consultation paper to support the conclusion that superannuation funds should not be members of organisations that produce proxy advice,” ACSI said in its submission to Treasury.
“When it comes to voting, our members act independently. Individual funds are not jointly involved in determining ACSI’s voting recommendations, nor do they jointly determine their voting decisions. This divergence is clearly evident in funds’ existing disclosures of how they voted. There is no requirement for ACSI members to follow any of the recommendations we make. Divergence of views between investors, and between researchers, is part of a functioning market.”
Frydenberg’s move to sidestep the Senate speaks to learned experience from the Your Future Your Super (YFYS) reforms, which were mutilated during a drawn-out debate when politicians on both sides of the aisle took exception to the investment veto power included within them. That power, described as a “regulatory kill switch” by some sections of the industry, would have allowed the Treasurer of the day to cancel any investment for essentially no reason. It was eventually excised from YFYS.
The investment veto power represented a dangerous centralisation of control over Australia’s financial services landscape. This move is the same; but this time, it’s not up for debate.
