Retirement Income and Alternative Investment Funds: The Australian Conundrum

Thursday, 2 July 2015: 4:00 PM-5:30 PM
TW2.3.01 (Tower Two)
Mark Westcott, University of Sydney, Sydney, Australia
In the two decades since 1992 funds under management in Australia have grown tenfold from A$252.3 billion dollar to A$2340 billion (ABS, 5655.00). This growth is to a large extent the result of the introduction of legislation (the Superannuation Guarantee Act, 1992) compelling employers to make contributions toward their employee’s retirement incomes. Australian trade unions have played an active role in the development of several ‘industry’ superannuation funds, including Cbus (the construction and building industry superannuation fund) and Australian Super, and supported were instrumental in the lobbying for the enactment of the Superannuation Guarantee Act. The intent of the legislation was to provide retirement incomes for workers thereby reducing their reliance on government welfare transfers, while also increasing the levels of national saving. The last decade has seen successive federal government make modifications to the superannuation regime. In 2004 legislation was enacted to provide workers with greater ‘choice’ in superannuation products. This shifted the onus of choice of fund away the employer toward the employee. Moreover, regulators believed that this increased capacity to ‘choose’ between superannuation funds would see an increase in smaller self-managed superannuation funds. These changes have arguably contributed to an increasing ‘financialisation’ of workers in Australia, with a greater awareness of and emphasis placed on investment returns from superannuation funds.

The enlarged pool of funds available for investment as a consequence of the growth of superannuation in Australia has contributed to the growth of alternative investment funds, such as private equity and hedge funds. Domestic pension funds have become the largest source of funds for venture capital and later stage private equity investment vehicle in Australia. Alternative investment managers are often more activist with respect to their investments than traditional investment funds. Private equity owners in particular have been associated with business strategies that redirect income (or ‘value’) that may have previously been shared by other stakeholders including workers and suppliers to owners. Workers in Australia face the situation that superannuation funds established to provide for their income in retirement are investing in activist funds that may threaten their current income. This paper begins to examine the linkages between superannuation and alternative investment funds. It then investigates the capacity of activist investors to capture ‘value’ held by workers. It is argued that the current labour law regime in Australia, particularly the Fair Work Act 2009, makes it difficult for activist investors to leverage value from labour. However, with a review of industrial relations laws recently announced by the current conservative government the tension between current employment conditions and returns on deferred income in the form of superannuation for workers may well become more pronounced.