The upcoming ACCC decision in the Port of Geelong case underscores the increasing focus of competition law on pension funds as they take direct stakes in listed and unlisted companies.
The decision originally scheduled for this month has been postponed pending “receipt of additional information”, suggesting the regulator was close to rejecting the deal.
Its promoters Tasplan and Palisades are now studying alternatives including a new structure to reduce the obvious links with the rival port of Portland. The Spirit Super Consortium’s $1.2 billion bid for Geelong is 51% owned by Tasplan, Tasmania’s largest not-for-profit fund and Sydney-based infrastructure manager Palisades Investments.
Palisades also controls 100% of the port of Portland which, together with Geelong, controls over 50% of the bulk cargo trade to and from Victoria.
It should also be noted that from November the Tasmanian government will be moving the Victorian port for its Spirit of Tasmania ferry from Port of Melbourne to Geelong, which is all the more reason for Tasplan to back Geelong’s bid.
The big drivers of Australian business today are clearly member-for-profit funds and they are increasingly active and have high purchasing power.
A parliamentary inquiry by the House Economics Committee earlier this year investigated the matter.
A fund manager who declined to be named described the investigation as a “Liberal Party tailoring,” but the presence of new deputy treasurer for competition policy, Andrew Leigh, on the committee added weight.
The change in government will reduce ideological concerns about benefits to members’ funds, but competition concerns remain.
Mutual fund ownership is a concern
Former ACCC chief Rod Sims flagged mutual fund ownership as a concern.
The parliamentary committee, chaired by former Liberal Party chief broker Jason Falinski, noted that “there is concern that a high degree of capital concentration is producing an environment in which these investors — sometimes referred to as ‘mega funds’ — have significant power to influence the market, potentially to the detriment of ordinary investors and the market as a whole”.
The committee quoted the Oxford professor, Professor Martin Schmalz, as saying that “if there were only two bakeries in town, the competition authorities would not allow one to buy the other because this would create a monopoly duopoly. If, however, an investor bought a 50% stake in both, there would be no prohibitions on this, and now the shareholder can use his influence to steer the management strategy away from investments in the improving products or gaining market share.
He added that “the results are the same, but one approach is very likely to be illegal and the other beyond the scope of current competition laws.”
“The prospect that investors might seek to stifle competition is clearly concerning.”
The committee said: “To date, however, there is a lack of evidence as to whether the concerns associated with concentration of capital and common ownership can be validated.”
However, he added, “it is essential that our regulators are proactive in understanding the risks associated with concentration of capital and common ownership now, so that we do not have to face a bigger problem. important in the future”.
Concern is also growing in the United States
Concern is also growing in the United States, focusing on large index funds BlackRock, Vanguard, State Street and Fidelity which manage more than $16 trillion in assets.
One of these four funds is the main shareholder of 88% of the companies in the American S&P500 index.
Andrew Leigh and Adam Triggs published an article focused on the Australian market last year, noting that “of businesses where at least one owner could be identified, 31% share a significant owner with a rival company. “
They looked at 443 industries that had common ownership, including banking, explosives manufacturing, fuel retailing, insurance and iron ore mining.
They concluded that “across the Australian economy as a whole, common ownership increases effective market concentration by 21%”.
This is different from breaking the law, but it underlines why the concern exists.
Others argue that it is an overstatement to say that just because a fund is a large shareholder in the four major banks, the fund wields some power over the banks.
Funds also keep media companies buoyant
Member profit funds help keep media companies alive through big brand ad spend, now default funds have given way to stapled funds.
They want to make sure their name is in your head when it comes to choosing a super fund.
This brand awareness campaign also keeps the regulator’s attention on the industry.
From a competition policy perspective, they are increasingly raising issues, not only because they are now taking large stakes in listed and unlisted companies in already consolidated sectors such as healthcare, through from Healthscope and the HESTA-backed Ramsay offering, but many have common strengths through their Industry Funds Management (IFM) Membership.
Their interests are diverse with fingers in many allied pies.
The ACCC is only interested when someone owns more than 20% of an asset, but conspiracy theories will grow when gorillas of 260 billion Australian dollars Super (AS) start buying stakes of more than 5% in the big four banks.
He noted that “when you focus on wealth management, you can find that you have this common ownership of a small number of competitors, and that’s where the problem comes in.”
Pushing for consolidation increasing the dangers
APRA is pushing for consolidation in the pension industry, which only increases the dangers.
The size of the industry was noted by the ACCC who told the Parliamentary Committee. “The consolidated assets of funds under management were valued at $3.3 trillion as of March 31, 2021. This figure equates to approximately 144% of the market capitalization of all companies listed on the Australian Securities Exchange (ASX), or 174% Australia’s nominal Gross Domestic Product (GDP) for the year to March 31, 2021.
According to the ACCC, the collective participation of three major foreign fund managers – Vanguard, BlackRock and State Street – would have represented 14% of the issued capital of ASX200 companies in 2019.
APRA said separately that “regulated superannuation fund holdings of listed equities represent about 20% of the market capitalization of all ASX-listed companies.”
Blackrock told the Committee: “Any legislative reform based on an idea still subject to rigorous debate is, in our view, premature and incompatible with the approach taken abroad. Moreover, it would abruptly impose direct costs and restrictions on Australians and their savings for an unproven consumer or market outcome.
IFM, which is owned by several member-benefit funds, also dismissed ownership concerns, telling the Investment Magazine “The theory that common ownership leads to anti-competitive outcomes has already been widely debated elsewhere and has been found to have significant flaws.”
He added “a number of competition authorities have concluded that the theory and available evidence do not justify changing the way they already control anti-competitive practices. “
Industry leader Australian Super, with $260 billion under management, manages more assets in-house and only wants a position in 20-25 listed Australian stocks.
Airports most obvious example of cross-shareholdings
Airports are the most obvious example of cross-shareholdings, with IFM controlling 85% of Sydney, 25.2% of Melbourne, 20% of Brisbane and 77.4% of Darwin.
The remaining 15% of Sydney is owned by Unisuper.
IFM shareholder Australian Super also owns 5.2% of Perth Airport and Unisuper owns 7% of Brisbane Airport and 49% of Adelaide Airport.
Similarly, Qantas has a stranglehold on Australian aviation, as it reportedly noted while reporting $5.1 billion in losses for the two years ending June 2021 Melbourne was the only one of the big four airports to lose money last year amid COVID shutdowns.
This is good news for its closely aligned investors.
Ties between airports hitting airlines with revenue-sapping aeronautical fees are at least raising eyebrows, though they are arguably not directly competing.
Ultimately, the so-called competition mafia, the lawyers who advise on ACCC matters, now have a lucrative new line of clients in the form of profits for members’ funds.