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Massive $3.1 trillion funds taking over the country: Why you should care

Chair of the House of Representatives Standing Committee on Economics Tim Wilson MP and Australian $100 notes.
Chair of the Economics Committee Tim Wilson is launching a probe into Australia's massive superannuation industry (Source: Getty)

Australia’s superannuation industry is massive. Valued at around $3.1 trillion it is worth more than the entire ASX ($1.6 trillion in 2020). Meaning Australians’ retirement pool is ranked the 5th largest in the world.

And it’s your money, it is the retirement savings for every working Australian adult, yet there are very few who take an active interest in how it is being spent and invested.

A few massive funds have a huge amount of sway on ASX listed companies but the catch is, they don't have to tell you where your superannuation is invested or how they vote in shareholder decisions.

Some funds will choose to disclose these things, but others won't, and even if you called to ask how they invest your money they can refuse to tell you.

Government inquiry into super

Now, the House of Representatives Standing Committee on Economics is commencing a new inquiry into the implications of capital concentration and common ownership in Australia.


This means they are looking into how we can ensure there is more transparency with Australia’s super funds so individual investors don't get the short end of the stick.

Committee chair Tim Wilson MP said the inquiry is urgent as he has concerns over an increasingly small number of mega funds owning large portions of Australian companies.

“We want to know the impact of capital concentration and what it means for consumers, what it means for competition and what it means for the democratic ownership of the nation ,” Wilson told Yahoo Finance.

“We also want to know if we need to adjust laws to recognise that capital concentration will give some people a lot of power to make decisions on behalf of the country, which will diminish the power of ordinary investors, particularly mum and dad investors.”

Wilson said the House of Economics Committee has been asking regulators about these risks for nearly a year.

“Recently the Chair of the ACCC informed the Committee common ownership posed threats to competition when it hits 10 per cent, yet some have already hit 30 per cent,” Wilson said.

“We don’t want a stock exchange where a handful of ‘mega funds’ make all the decisions, and ordinary investors are locked out and higher costs are paid by Australians. Some ‘mega funds’ have already said that as their ownership increases they’d de-list public companies.”

  • Also watch: My superannuation has taken a big hit. What do I do?

Why do we need an inquiry into mega super funds?

Wilson said super funds have been less than enthused about the inquiry, but the purpose is to ensure there is more transparency in the way our retirement money is being used.

“This is about empowering the ordinary Australian and making sure they are not being dominated by mega funds who basically tell them ‘you can chip in money but you can’t have any say’,” Wilson said.

Wilson said the super system relies on Australians not taking an active interest in their superannuation.

“Superannuation runs on a model of deferred disengagement and that is how some parts of the sector like it to be,” Wilson said.

“What we can’t have is unelected directors imposing standards on the market that have never sought sanction from their members. Super funds need to show more respect to their members.”

While Wilson has concerns particularly around the super sector, the Committee will investigate the common ownership by all institutional investors including banks, investment funds and hedge funds.

“This inquiry will shine a bright light ‘under the hood’ of the ownership of the ASX today, and ensure that we update the law, regulations and regulators to address the challenges of the future so we empower citizens, not organised capital,” Wilson said.

What do the funds have to say?

Wilson told Yahoo Finance that some of the funds have been less than pleased about the parliament's interest in their investment strategies.

“Some of them have had a tantrum because they think that they have been pushed in the direction towards consolidation, and they have been,” Wilson said.

“But that doesn't mean there are negative consequences towards consolidation and those issues need to be looked at and addressed as well.”

Industry Super Australia CEO Matt Linden told Yahoo Finance super funds investing in Australian companies helps power the Australian economy.

“The retirement savings of millions of Australian workers are being invested in Australian businesses helping them to grow – which in turns powers Australia’s economy and delivers strong returns to workers,” Linden said.

“The Treasurer Josh Frydenberg once saw it as critical that super’s ‘massive pool of savings’ be ‘harnessed’ towards domestic investment, but then he bizarrely signs off on a political inquiry on institutional investment when funds answer his call to invest in Australia’s economy.”

Linden said there could be dire consequences to Australia’s economy if the Government pressures funds to stop investing locally.

“A logical and perverse consequence of this inquiry could be that super funds and other institutional investors are required to invest more capital offshore, which could be to the detriment of Australian business, the national economy and ultimately millions of workers.”

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