The godfather of the $2.7 trillion superannuation sector, Garry Weaven, says the business community and governments “of any persuasion” would be “mad” to avoid greater collaboration with super funds, given that the sector will be three times the size of GDP by 2030.
Speaking on a panel at the Australian Institute of Superannuation Funds’ annual Super Investment Conference (ASI 2018) on Wednesday, IFM Investors’ Weaven said industry super funds could potentially partner with banks, which are being pressured by looming lending restrictions emanating from regulatory change, and are focusing on lower risk, or high-profit margin, areas such as transaction banking and residential banking.
“Something like $95 billion is lent to non-finance corporations from the banking sector each year. That is potentially big business, indeed, and that can be addressed in part by us,” he said. “They [banks] are going to need to spread their balance sheet more effectively and that is going to present a great opportunity for a big expansion in the number of opportunities to step in, possibly in partnership with those banks, as strange as that may sound today.”
On Wednesday, Weaven laid out a blueprint for a way funds, the private sector and government could work together on projects such as large-scale infrastructure.
“I think a much better way would be a partnership approach between governments and the superannuation sector,” he said. “Obviously requiring some kind of pre-approved manager where, essentially, a bargain would occur in a very transparent way around a target rate of return for a particular project.
“Critically [this would be] a system where the manager itself would not make windfall profits from the transaction, and the manager would be confined to a fixed management team for the life of the asset.”
Weaven said once a deal had been negotiated it would be “offered to every single registered superannuation fund in Australia”.
“Every fund would have an equal opportunity to participate, and if it was attractive and it was oversubscribed, every fund would be scaled back in proportion to either the size of the fund or its number of members. If there was outperformance, then everyone in the community would be sharing in it,” he said. “It would also be efficient in terms of dealing with the banking community in the raising of debt. The biggest part of infrastructure assets and projects is actually bank finance not equity.”
On Tuesday, IFM Investors said it would rebate 7.5 per cent of the investment management fees it collected over the 2017-18 financial year; chief executive Brett Himbury lambasted asset managers that, he said, had long enjoyed “too much of the spoils” from “not a hugely capital-intensive business”.
Weaven said the industry super sector was now at an “inflection point”.
“Over 35 years of history in the industry fund movement, we’ve hardly had a year go by there hasn’t been some attack in one form or another from the Coalition, in either government or the opposition,” he said. “There could be an emergence of an opportunity for all of that conflict and opposition to finally turn to collaboration, at least to some degree, between the business community, the super sector and governments – both state and federal.”
This echoed the buoyancy from new Industry Super Australia chief executive Bernie Dean, who told the ISA Stakeholder Forum on Monday that industry funds had “been given a clean bill of health by the [Hayne] royal commission”.
“The outrage at the banks is real,” Dean said. “They are in a tight and very dark spot; people’s confidence in super is resilient. They’re actually looking at their super accounts and taking matters into their own hands. On our rough estimate, 1 in 5 retail fund members are looking to switch to an industry super fund.”