Liberal MP Tim Wilson has urged APRA to investigate potential conflicts of interests arising from industry superannuation funds and their vertical integration models, with a focus on Hostplus and its involvement with IFM Investors.
Mr Wilson wrote a letter to the regulator’s chairman Wayne Byres after a report found leaked research, commissioned by Hostplus, revealed the fund had 70 per cent of its of its infrastructure investments managed by an investment manager it partly owns, IFM Investors.
The Hostplus leak had highlighted a number of issues, the MP said, listing: “a conflict of interest by the fund, a failure to sufficiently spread risk, and secrecy when such problems are identified”.
Mr Wilson, who is also chair of the House of Representatives standing committee on economics, has thus asked that APRA conduct a review into the fund as well as an examination across the industry super fund sector, to ensure there is “proper diversification of risk and that conflicts of interest are managed”.
“Such a review is not without precedent,” Mr Wilson wrote.
“This request sits against a backdrop of trends I am observing across the sector.”
Industry funds, IFM 'secrecy is disturbing’: Wilson
Mr Wilson said in his work with the standing committee on economics and its inquiry into the big four banks and other major financial institutions, he had seen a number of consistencies across the companies’ answers.
According to the MP, IFM Investors in particular needs “greater scrutiny”, as the organisation has refused to provide evidence for a number of questions the committee asked.
The investment manager had argued it is commercial and the information was in confidence, but Mr Wilson noted other institutions had provided the same evidence in comparable situations.
The standing committee grilled former IFM chief executive Brett Himbury about executive pay in November, asking about severance packages after an executive director was accused of sexually harassing an infrastructure analyst and left the company.
The Superannuation and Financial Services Assistant Minister Jane Hume also more recently blasted IFM for being “notoriously opaque” around remuneration, following reports the investment manager paid out a $12.7 million bonus in addition to a $2.8 million base salary to an unnamed director.
“One of the most glaring trends has been the interconnectedness of industry funds and their investment structures that raises questions about their fulfilment of the sole purpose test (such as allocating significant capital to ME Bank when it has never returned a dividend), conflicts of interest (such as heavy exposure to ISPT and IFM Investors) and low transparency (such as IFM Investors’ failure to answer basic questions on remuneration),” Mr Wilson stated in his letter to Mr Byres.
“…It is my conclusion that IFM Investors seem to believe as they are ‘one-step-removed’ from the funds that receive the compulsory retirement savings of Australians, that they are ‘above’ the scrutiny and transparency justified for oversight of Australia’s retirement savings.
“I do not share this view. Considering the exposure many industry funds have to IFM Investors their secrecy is disturbing.”
He hinted he would suggest to the committee a need to consider its options around the investment manager, in order to complete its inquiry.
APRA is yet to respond to the letter, with a spokesperson telling ifa sister publication Investor Daily on Wednesday it would be replying directly to Mr Wilson.
In 2018, ASIC completed an investigation into retail banking and financial institutions and their conflicts of interest from vertical integrations and over-exposure to risk through related party funds.
The corporate watchdog also looked at conflicts of interest across vertically integrated businesses in the funds management industry in 2016.
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