World’s Fourth-Largest Pension Pool to Fill Activist VoidNarayanan Somasundaram
Two of Australia’s biggest pension funds say the industry will become more vocal in holding listed companies to account as assets are increasingly managed in-house, filling a void of shareholder activism in the nation.
AustralianSuper Pty. and UniSuper Management Pty., which together oversee more than A$100 billion ($92.8 billion) in assets, are increasingly managing funds internally to curb costs and boost returns. That trend will see them become more active in questioning company boards, according to UniSuper’s Chief Investment Officer John Pearce and Andrew Gray, investment manager for governance at AustralianSuper.
“When we see deviations from strategy or management failing to execute that strategy it’s time for a robust discussion,” said Pearce, who unsuccessfully lobbied against billionaire Frank Lowy’s plan to split Westfield Group earlier this year. Pension managers are likely to “become more active as more funds are managed in-house rather than outsourced.”
While pension funds in Australia oversee the world’s fourth largest pool, valued at A$1.85 trillion, they outsource about 90 percent of their assets to external managers, according to Deloitte Touche Tohmatsu Ltd. There’s a dearth of shareholder activism in Australia, compared with the U.S., where investors such as Carl Icahn and Kirk Kerkorian have used minority shareholdings to push for changes at companies including Apple Inc. and General Motors Co.
“There is a clear trend where superfunds are becoming more active as shareholders,” Melbourne-based Gray said in a telephone interview. “Ultimately our aim is to maximize the outcomes for our members and in that respect we engage with companies. The term we would use for this trend is active shareholders focused on outcomes rather than activists.”
AustralianSuper, the country’s largest pension manager, oversees A$75 billion of member assets and aims to directly invest 30 percent of funds by 2018, according to its website.
UniSuper, the seventh largest with A$41 billion in assets, manages 45 percent in-house, according to its website. Of 50 pension funds surveyed by SuperRatings Pty., 24 percent directly invest at least 30 percent of their member funds, up from 13 percent two years earlier, the pension fund tracker said in an e-mail.
In a sign of engagement, Pearce said he “rebelled” against Lowy’s plan to separate the global and local businesses of shopping mall operator Westfield, on valuation grounds. UniSuper was the biggest shareholder in Westfield Retail Trust Ltd., with an 8.5 percent stake.
In an investment update in June, Pearce listed the higher debt levels at the proposed Australian and New Zealand entity and risk from development and management fees among the reasons for opposing Lowy’s plan, which won final shareholder approval in June.
The Australian approach to activism has tended to be behind closed doors rather than taking a public stance against boards and management, Pearce said in an interview in Sydney.
A lack of shareholder activism in Australia had led to a lack of board accountability, contributing to investment capital being misspent, Mark Carnegie, the managing director of MH Carnegie & Co., said in an interview Aug. 12.
Weak capital productivity pulled about A$43 billion from Australia’s economic growth between 2005 and 2011, according to a 2012 report by McKinsey & Co. That was masked by surging investment in the country’s mining and energy sectors to meet China’s demand for commodities, according to the report.
“Pension funds are only expected to get a lot more active as time progresses,” said Bill Fuggle, a partner at Baker & McKenzie in Sydney who advises the funds. “As their shareholding increases, you would potentially see them making demands and wanting managements to heed to it.”