Government told to stop trading in hypotheticals as experts dismiss common ownership concerns

The CEO of the Association of Superannuation Funds Australia, Dr Martin Fahy, compared Thursday’s standing committee on common ownership and capital concentration to a conspiracy, drawing attention to probable harms of regulatory action against an unconfirmed threat.

The CEO’s conspiracy assertions relate to ASFA’s firm belief that there is no evidence of harm and that the theory of harm does not stand up to scrutiny.

Commenting on the hearing’s proceedings on Thursday afternoon, Dr Fahy stressed: “Good public policy deals in the facts and evidence and we shouldn’t legislate for hypotheticals.

“There’s no evidence of causation to suggest that common ownership and capital concentration causes harm to consumers, competition or capital markets.”

According to the association’s submission to the government, the theory of harm of common ownership assumes institutional investors, explicitly or implicitly, have incentives to reduce competition in particular industries.

Given ASFA’s view that empirical evidence is thin for both the extent and effects of any potential harm of common ownership, Dr Fahy argued on Thursday that any regulatory responses to this hypothetical threat are likely to be harmful.

“For consumers, limits and restrictions on investment activities would limit the capacity for investment managers to diversify investments, potentially leading to lower long-term investment outcomes,” ASFA underlined in its submission.

“For listed companies, restrictions on investment activities would likely lead to an increase in the cost of capital. If widespread, this would necessarily lead to a lower level of gross fixed capital investment in the private sector, and lower long-term economic growth than otherwise would be the case.”

Also present at the hearing was the CEO of the Stockbrokers and Financial Advisers Association (SAFAA), who inevitably agreed with Dr Fahy’s conspiracy assessment.

Speaking to ifa post the hearing, Judith Fox said that correlation is not causation. 

“The academic theories that are being explored are, at this point in time, theories, and as the chairman of the inquiry said, it’s the role of Parliament to explore things, but at this point in time, it doesn’t look as if there is any sort of requirement to do anything more than explore,” Ms Fox said.

She did, however, call for a level playing field for retail investors to participate in capital raising, warning that in the absence of regulatory framework in this regard, capital will inevitably concentrate in institutional investors.

“We would like to see much greater capacity for a level playing field for retail investors in capital raisings,” Ms Fox concluded.