The Lexcorps of the Next Decade Will Be the Big Super Funds

[](https://www.theaustralian.com.au/business/the- lexcorps-of-the-next-decade-will-be-the-big-super-funds/news- story/6592e35cc73dda23d1276fb570458d5b) A few years ago, the now Assistant Minister for Competition Andrew Leigh made himself a laughing stock. Leigh thought Australia was going to be owned by a Superman inspired Lexcorp type group of companies. Leigh [hilariously said](https://www.theaustralian.com.au/opinion/labor- invents-a-straw-man-of-an-evil-australian-business-sector/news- story/50d3c5a5ae6b1384b8042b0ecd896a3d): “Who are the Lexcorps and Cyberdynes of the Australian economy? It turns out that five investors – HSBC, JP Morgan, National Nominees, Citicorp and BNP Paribas – own a massive chunk of our listed companies.” The Sydney Morning Herald later said of an article in which Leigh made the argument: “the analysis of share ownership in this article has flaws that led to an incorrect identification of the largest common owners in the Australian share market.” Leigh was wrong because these companies are nominee companies or custodians which hold shares on behalf of the owners. Anyone with any knowledge of the capital markets would know this. What Leigh may have stumbled upon is that [the Lexcorps of the next decade](https://www.theaustralian.com.au/business/business-spectator/news- story/only-the-strong-survive-understanding-the-amazon- workplace--/246fe902cd26a0c5749f6be2e9beb999) will be the big super funds. A dozen or so major super funds will end up owning a very large chunk of Australia’s companies and in doing so they will have a huge impact on everyday retail investors. The Lexcorps of our time are getting organised. At the end of last year, eight major super funds co-ordinated themselves formally into a collective of eight – known as the [Super Members’ Council](https://www.theaustralian.com.au/business/wealth/former-labor- minister-nicola-roxon-will-chair-new-super-industry-lobby-group/news- story/18b4eb4e08143826082155c8b541c9f0). This means they will be co-ordinating to lobby for their interests. Note this will be the interests of the funds themselves, not the members of the funds. A precursor of the new world we can expect dropped at the end of last year when [AustralianSuper killed the Origin](https://www.theaustralian.com.au/business/mining- energy/australiansuper-rejected-then-sought-part-of-origin-energy-bid/news- story/4c03474f6048b58ceb5aa0ca1360062e) takeover by Canadian fund manager Brookfield. While I am loath to comment on specific transactions as a lawmaker, it seems very likely that retail shareholder value was destroyed by the actions of AustralianSuper. AustralianSuper may have had commercial or investment reasons for doing so but given the nature and heritage of the super industry, there may have been political motivations. Given the board dynamics of industry super funds, there is always the risk of union interference in the funds. I believe there are a couple of reforms which will need to be considered if this behaviour is to continue. Australia is home to one of the largest bodies of retail investors in the world – we have to ensure these investors are protected. The first idea would be to expand the remit of the Takeovers Panel by introducing a requirement for mega super funds to consult with and consider the interests of mum and dad investors on major transactions. The Takeovers Panel already “has the power to make orders to protect the rights of persons or groups (especially target company shareholders) during a takeover bid…” Their governing legislation could easily be tweaked to mandate a retail shareholder duty of care process for any transaction involving a super fund with a stake of more than 5%. There would be new transparency obligations which would bring any dodgy deals to light and the measures taken by large investors to protect the interests of small investors would be known. In the case of AustralianSuper and Origin, there would have been formal engagement between the major and minor shareholders, data analysis of the impact on small shareholders and public inspection of these implications. Another more dramatic step, if the first policy idea failed, would be to stop APRA regulated super funds owning more than 10% of public companies. This would be an entirely reasonable policy option to consider due to the compulsory nature of super. It would apply to major super funds and would only allow ownership of 10% of the total stock on issue in an ASX listed company. This way, [Canberra’s Frankenstein](https://www.theaustralian.com.au/nation/politics/warning-on- political-clout-of-super-funds/news-story/e0c6ef4d18e53e736ce7d63e25a0c977) (the super funds) could not eat up the whole local exchange and use it for political or semipolitical purposes. For this more punitative measure, there would also be an anti collusion obligation to ensure major super funds couldn’t get around the 10 per cent rule. It would only be applicable on a prospective basis as forced selling would be detrimental to all shareholders. Australia already has a similar mechanism in place known as the Qantas Sale Act, this law prohibits the majority foreign ownership of Qantas – a public company. Personally I would scrap the Sale Act as Qantas is a private company but I do see a strong case for Canberra regulating its own monster. Both of these ideas should be in the mix to give confidence to all the mum and dad investors that you can still get a fair go in Australian capital markets. The Lexcorps are coming whether Andrew Leigh is across the detail or not! _Andrew Bragg is chair of the Senate Economics Committee_