Heather Ridout AO MAICD leaves the AustralianSuper board after 12 years, six as chair, after a period that has seen the fund grow to 2.2 million members with $150b in assets.
As a profit-for-member fund, its board consists of equal numbers of directors representing members and employers, appointed by the trustee’s shareholders — the Australian Council of Trade Unions and Australian Industry Group, and two independent directors.
Underscoring the fund’s shift in its operating model, in 2007 its capital was handled by external managers. Now only 60–63 per cent is managed by external parties and the rest in-house.
Top 5 Funds*
- AustralianSuper $160b assets, 2,228,000 members
- QSuper $103b assets, 581,117 members
- MLC $81.3b assets, 1,168,000 members
- Public Sector Superannuation $78.8b assets, 225,749 members
- Colonial First State $77.2b assets, 777,042 members
*Based on assets
Source: APRA June 2018
Ridout says AustralianSuper has had an internal team focusing on ESG and stewardship issues for more than five years and its activities will continue to expand as the fund grows beyond $300b, probably by 2025.
“The next change is going to be a much greater allocation offshore and much greater direct investment,” CEO Ian Silk told an Australia Israel Chamber of Commerce forum in June.”We were previously an organisation that focused on managers; increasingly, we’ll be an organisation that focuses on securities.”
Ridout says AustralianSuper already has a good engagement process with many of the companies it invests in. In 2018, the fund and its representatives met more than 250 company CEOs, chairs and boards to discuss a variety of issues.
As to whether it will be involved in more privatisations, Ridout says she anticipates its private equity stake will grow from about three per cent of the portfolio to seven per cent during the next five years.
“AustralianSuper’s perspective on governance is the same whether a company is listed or not,” she says. “If, through our plan to increase our private equity allocation, private-sector governance increases its focus on the impact of ESG issues on long-term value creation, we think that would be a positive outcome. We are a long-term investor and will continue to actively engage with corporate Australia to ensure the best outcome for the company and members’ long-term returns. The fund will also continue to seek the advice of proxy advisors where appropriate because they play a very important research and advisory function in the financial services system.”
With $2.7 trillion in assets under management, Ridout says super funds will provide a huge capital base and that Australia could ultimately be an exporter of capital.
“It’s a great Australian success story,” she says. “We have a huge national asset. There will be fewer, bigger and better funds,” she says. “I’m strongly of the view that poorly performing funds should be wound up because Australians should not have their money in funds that are costing them so much in their working lives — and with all the issues we’ve been dealing with recently.”
In July, AustralianSuper released its self assessment on seven aspects of governance provided to APRA. It identified strong ratings in board and senior leadership oversight, financial objectives, culture and remuneration, but said it required further work on risk management, including the three-lines-of-defence model and compliance, issue identification and escalation, and accountability.
The Politics of Super
With superannuation investments booming, there is growing debate over undue influence.
In February, the Australian Council of Trade Unions (ACTU) demanded 30 union-backed industry super funds pressure BHP Billiton to guarantee 80 local seafaring jobs. In a letter to the funds, ACTU president Michele O’Neil said, “Industry funds have a proud history of using their investment power to advance the interests of Australian workers.”
Such a stance is potentially dangerous ground. If industry super funds push the cause of unions through their voting power, boards’ responsibilities will remain to protect the interests of all shareholders and the organisation. In doing so, directors could be voted off their boards by industry funds.
“I’m concerned industry super funds have become too politicised,” says Lendlease and South32 chair David Crawford AO FAICD. “It’s an absolute abrogation of responsibility if industry super funds use members’ money to advance the interests of a very limited group of people, such as a union. There must be checks and balances on organisation performance and governance, but we have industry super funds pushing issues more about advancing a political or ideological view than enhancing long-term returns for members.”
Philip Armstrong, director of governance at the Gavi Alliance in Switzerland and, a leading thinker on governance policy and trends, has followed this debate overseas.
“Giant US and UK pension funds are under pressure from unions to use their investment power to pursue policies that are in their related union’s best interests,” he says.
“Union members realise these investment funds give them a degree of influence over companies that they no longer have through a union with declining membership. The risk is that ESG (environmental social governance) morphs into something more politicised.”
One risk, says Armstrong, is younger members of union-aligned pension funds pushing for workplace change through their investments. “Millennials generally have lower trust in corporations and a much longer investment time frame.”
Reducing the risk of fund politicisation is challenging, he says. “Ensuring pension fund (industry super) boards have greater independence is a good start, but the pool of potential directors being put forward for election is usually favourable to a union. That’s why we see many ex-politicians joining the boards of pension funds around the world.”
Directors have long called for greater independence in the boardrooms of industry super funds, for higher governance standards, and for super boards to govern to the standard they expect in companies in their fund’s investment portfolios.
Australian Council of Superannuation Investors CEO Louise Davidson AM MAICD refutes these suggestions. “Fears around the politicisation of industry super funds and their governance activism are unfounded,” she says.
“Industry super funds are focused on ESG because they have a responsibility to safeguard member funds and ensure the long-term sustainability of their investments.”
Davidson says the focus on governance by super funds is a “global phenomenon”, not politically motivated.
“Pension funds have become more focused on governance and are pushing for considered, sensible change. Largely, it’s because members want their money invested in responsible companies. Because industry super funds invest in companies for long periods, they must understand their risks.”
Heather Ridout AO MAICD also refutes claims of fund politicisation. “The only agenda AustralianSuper pursues is to provide members with the best possible retirement outcome. Any suggestion the board is concerned with anything other than members’ best interests is fanciful and without evidence.”