28 May 2019
$3.8 billion. That is the latest lump of retiree savings that AustralianSuper has awarded to IFM Investors to look after and grow. How good is industry super!
In the post-Hayne, post-Fox- and-the-Hen-House era of nationwide cynicism towards financial services, the profit for members sector is luring literally billions of dollars across from the retail funds.
IFM Investors is itself owned by the industry funds and the latest mandate takes its funds under management to a cool $130bn.
IFM’s chief Brett Himbury is a type for the times, low key with the pitch perfect message of workers’ savings driving investments for the benefit of the people: Main Street, not Wall Street money, driving impressive returns, much of it from infrastructure.
“Often understated, but motivation is a critical ingredient in driving superior net returns,” Himbury explains.
“If you are motivated solely by the returns to investors and not confused or distracted by any other motive, that has to help.
“Then it’s about your asset allocation, then it’s about your manager selection and then it’s about your fees, and so those funds that have performed superior have got a terrific unrelenting motivation on member returns.
“They have had an asset allocation which has accessed, among other things, the illiquidity premium in unlisted markets. They have been really focused on a smaller number of relationships so they can use their scale to drive fees down.”
Worrying for retail active managers is that increasingly industry funds are choosing to bring investment management in-house.
AustralianSuper recently sacked three managers and their loss would seem to be IFM’s gain.
But this development is symptomatic of a much bigger political issue because with money brings power and influence.
Critics of industry super see two clear threats to business: the first is a push for broadscale wage hikes from within the boardroom driven by union activists like the ACTU who have already declared this to be their agenda; the second is that industry funds with so much money and a mandate to grow have major listed companies in their crosshairs to take private.
John Howard on election night called the result a vote to end class warfare pushed by Labor but, ironically, since the result there has been a concerted campaign from the right side of politics warning government of the risks of union-backed industry super spreading its wings and demanding those wings be clipped.
They see the Keating legacy of industry super now delivering huge and unrepresentative union power right into the boardrooms of ASX companies. Class warfare is shifting to the super sector.
Reaffirmed Treasurer John Frydenberg has already committed to a review of super, and we can all expect a good stoush on whether the Productivity Commission’s recommendations on single default super for new employees and a top-10 best in show are carried.
Himbury says he simply wants political and business leaders to get on board. “It would be lovely if governments and companies and chairmen absolutely scrutinise the challenges, but really better understood us and, in so doing, looked at the opportunity as well as the risks of embracing IFM, the industry funds sector.
“Because there is a magnificent opportunity for members, for participants and for the country.”
Himbury promises to be active, not activist, on a register. He proffers a now familiar line that pressure for environment, social and governance changes are not just good for society, but good for the enterprise long term and hence good for long-term returns.
Whether this argument also extends to pressure for wage hikes is one of those known unknowns, but like industry super leaders Heather Ridout and Greg Combet, Himbury does not see unions riding roughshod.
“Let me be clear — the industry super fund on the (shareholder) register is working for working people and that’s it. There’s the unions and the employers that sit on the boards of industry super funds,” Himbury says.
“There’s clearly a lot of discussion about the role of unions, but it is a dual representative model that has worked so well.
“Look, I acknowledge the debate and it’s not going to go away, but I would really love to try and evidence — and we can — how our form of capital has really helped enterprises improve their proposition to customers and drive up superior enterprise value, which has driven superior returns to our members. If we could shift that thinking that would be fantastic.”
There’s is a big leap of faith required from business that unions will not influence industry super to the detriment of a company’s growth and profitability.
Some see the dual representative model as far from balanced, with the typically middle-ranking employer representatives a pushover for unions, and as keen to entrench a current system that ain’t broke. Interesting then, that the new Morrison government is to reignite the battle for independent boards. The shock Morrison victory was a clear blow for industry fund leaders: the faces said it all. Himbury was flying back from the US as the result came through.
I put it to him that Labor’s controversial changes to franking credit policy would have benefited industry super with yet more funds pouring in from self-managed super.
“No and it hasn’t happened for a range of reasons, but I think the growth of the system, super all up and the growth of industry super will still be strong and continued because of the broader proposition that has otherwise delivered for working people. It’s a wonderful asset.
“We’ve got other assets that we dig out of the ground. How about mining, for want of a better word, the super pool? We, the industry funds sector and the super sector more broadly, whatever the government of the time, are really looking forward to a much more collaborative and co-operative relationship, so we can do some great things together.”
Well, perhaps Himbury would say that wouldn’t he, talk up collaboration, especially given the surprise turn of events in Canberra? One way or another, IFM needs asset growth and higher returns. Super savings in Australia have already reached 140 per cent of GDP.
“Growth in the country and around the world is coming off and we’ve got to look at productivity measures to sustain and improve the growth prospects, and again I think there’s an exciting opportunity for the private sector and the public sector to really look at how we might engender and sustain greater productivity growth.”
Yet this exciting opportunity Himbury talks about is the other contentious area for boards. AustralianSuper is reported to have plans to take at least one ASX listed company private a year, and given the well aired conflicts that emerged in both the failed Healthscope takeover and the successful Navitas play, does Himbury think boards should fear having industry super or IFM as a stakeholder on their register? “Absolutely not. I think they should question, and they should critique, but I would hope that they don’t fear. This is a large, growing pool of capital that would love to work with enterprises, respect the role of boards, respect the role of management, but provide a long term source of sustainable capital to enable them to invest in their business to grow the enterprise, to impact society, to improve the service to their customers and enhance the returns to members.
“I hope and believe that the more discerning companies and boards are clearly looking at some of the risks but opening up and embracing some of the opportunity to work with a different long-term form of capital that can help them.”
There you have it chaps, this won’t hurt a bit.
Ticky Fullerton is the Sky News Business Editor