How you view superannuation is largely dependent on your age bracket. For younger workers, it is not well understood and a bit boring. For those getting closer to retirement age, their interest piques as it sets out the type of lifestyle they are going to live in their autumn years.
For most workers, super funds – whether they are for-profit or industry funds – tend to be viewed much the same way as a bank. As long as the balance goes up every year, most people don’t take a lot of notice.
This sounds like a pretty simple business model. Take worker’s monthly contributions, invest wisely and report at the end of the year. Rinse and repeat.
But is it really as simple as that? Behind the scenes, global pension funds and institutions have long been committed to owner activism aimed at maximising the value of their investments.
Some of the largest sovereign pension funds in the world – Japan, Norway, South Korea and Canada – actively exercise voting rights across their portfolios and report annually on metrics relating to shareholder meetings. Likewise, global institutional funds have a long history of stewardship. So much the case that the world’s largest asset manager BlackRock made headlines in 2017 for finally joining the party, with a landmark vote backing shareholder proposals on climate-related issues at Occidental Petroleum and ExxonMobil.
It’s been interesting to see some of Australia’s largest super funds finally putting on their activist hats and calling out companies and their boards, often with megaphones turned up to 11.
Australian Super is a behemoth of the Australian superannuation landscape. With over 3.2 million members and over A$300 billion under management, its performance has the potential to significantly shift the Australian economy.
Over the past month or so, Australian Super has been flexing its muscles, using its balance sheet to increase its holding in Origin Energy as a way to scupper a takeover plan from Brookfield and partners. Billions were spent (and more committed) to keep Origin in Australian hands and use it as a major vehicle for decarbonisation.
Days later, Australian Super and Aware Super came out publicly seeking answers from Sandfire Resources regarding its admission that it had destroyed some aboriginal artefacts five years ago and only notified the Government last month. As Sandfire’s largest shareholder at 14.7%, Australian Super is furious that its name has been dragged into ‘Juurkan Gorge 2.0’, an incident which WA Premier Roger Cook labelled ‘egregious’.
Some are questioning the role of funds, banks and corporates in promoting or discussing social issues that may or may not be related to their industry. Many companies and institutions have fallen afoul of public sentiment when taking a stand, one only needs to look to Qantas, Gillette, Bud Light and even Disney to see the kind of backlash that can be associated with corporate activism.
It is one thing for an asset manager to give an investment’s board a ‘whack’ via a No vote on the annual Remuneration Report vote (one of the few tools available to index funds to stand up to management given they need to maintain their investment). But it’s a big step up for funds to be actively lobbying their investments, pushing for management changes and demanding meetings to explain behaviours.
However, should we be surprised by the sudden bullish behaviour?
The Australian superannuation sector is massive, with the Association of Superannuation Funds of Australia estimating the industry was worth A$3.5 trillion at the end of June 2023. Every quarter, without fail, new funds are deposited in that require to be invested on behalf of investors.
This ‘weight of money’ has seen sustained buying of stocks, which has resulted in some oversized positions in different companies by different funds. Where previously funds would invest but stay below the statutory 5% substantial holder level, we are now seeing levels of 10-20% which are sufficiently large to warrant Boards listening.
With many funds also trying to align with the implementation of Australia’s Sustainable Finance Strategy, it is not unexpected to see funds taking large positions to shift the direction or speed of climate action at some of their investments. This has the potential to offer better returns, targeting future facing industries, whilst also helping their green credentials.
It seems that now Australian funds have found their voice, they are unlikely to remain silent in the future.
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Photo credit: Micheile Henderson