When It Comes To Deploying Your Super, Fund Managers' Interests Are Far From The National Interest

Australia has more than $1.5 trillion locked up in Superannuation yet still we hear that foreign capital is needed to fund industry and infrastructure.

The latest call came from Graincorp boss Alison Watkins who the Sydney Morning Herald reported last week said: “Australia did not have a big enough population to provide the capital needed to keep upgrading infrastructure in the grains sector, so investment from the likes of US agriculture company Archer Daniels Midland was essential.”

But as Treasurer Joe Hockey decides on whether or not the Archer Daniels Midland bid for Graincorp is in the National interest and as the battle for Warrnambool Cheese heats up, and looks likely to be decided by foreign buyers or at least Bega’s foreign support from Fonterra, the question that seems obvious is whether Alison Watkins is right.

Does Australia need foreign capital or do we have enough capital sitting in Australian super that if invested with a little broader mandate could serve to provide the capital needed and profit from that provision?

It’s a question Business Insider asked Alex Dunnin, Director of research & editorial at Rainmaker group. Dunnin told BI that there are about $1.6 trillion in asset of Australian Superannuation funds but that only about $1.1 trillion is controlled by Fund managers with the asset allocation shown in the chart below.

That means there is about $311 billion in local stocks as well as $260 billion in offshore stocks together with a quite large $134 billion in “alternative” investments.

Taken together that is more than $700 billion in what you might call “risk” assets. The type of capital that should be available for investment in Australian businesses like Graincorp.

So the capital is there but the transmission mechanism to get that capital is somewhat lacking.

Here’s why.

The $1.1 trillion in Super assets is controlled by funds managers. Funds managers manage funds, they don’t by nature of their mandates manage companies – just the funds at their disposal to invest in these companies.

Most are also guided by mandates that specify a certain benchmark such as the ASX 200, or the MSCI world index Ex-Australia if it’s an offshore, or the many other permutations of the MSCI index universe.

They aren’t in the game of investing or running companies – what they do is run money.

So a bid by Archer Daniels Midland to take Grain Corp over in a trade purchase is simply outside the mandates that Australia’s fund managers have.

Indeed in a bidding war they are obliged to maximise the return to their fund managers no matter whether they would prefer Graincorp to remain in Australian hands or not.

Many of Australia’s fund managers and super funds will be invested in Graincorp, some will be invested in Warrnambool or Bega Cheese and some may even be invested in Fonterra.

The problem in Australia is not a lack of capital. It’s the transmission mechanism to make our massive pool of savings available for the many worthy ideas, companies and infrastructure projects that just don’t fit funds managers’ mandates.

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