Wayne Swan plans fightback over hits to Cbus reputation

The former treasurer is not going anywhere but has come out firing with a plan for the mega super fund to get its mojo back.

‘We don’t want to be another mega fund.’ Former Federal Treasurer and Cbus Super chairman Wayne Swan says he is determined to get the fund back on track. That involves a focus on service over getting bigger. Picture: NCA NewsWire / Dan Peled

Former treasurer Wayne Swan has had a lifetime’s worth of bloody political scraps and copping the barbs. This experience is what has made him even more determined to see through what’s needed to be done at Cbus to get the super fund’s battered reputation back on track.

The industry fund this month hit a historic milestone as it passed $100bn in funds under management and recorded a rise in member numbers last year. However, it was a more subdued celebration – compared to last year’s gala marking its 40th anniversary. The construction industry-aligned fund has faced serious questions over governance given one of its foundation backers – building union the CFMEU – is now in the hands of an administrator amid claims of criminal links and kickbacks.

Cbus Super has come off a year of reputational hits. Picture: NewsWire/Glenn Hunt

More damning, though, was the shock legal action from corporate regulator ASIC launched two months ago alleging that thousands of members or beneficiaries faced lengthy delays in getting disability or death payouts owing to them. In total, the disputed insurance payouts amount to $20m, amid claims some members had been waiting up to a year.

From the outset, Swan declares he is not going anywhere as Cbus’s chairman, despite the recent turmoil. He also says the fund is planning to defend its role in the legal action, which has been filed in the Federal Court as a civil case.

Swan can’t speak about the details of the case which was brought about by ASIC. However, he reiterates he felt sick when the board first became aware of the delayed payments. (He apologised on behalf of Cbus in November when it came to light.)

As of this week, more than 90 per cent of the outstanding claims have been paid out, he says. The outstanding cases are generally those that will need more details, but are being worked through as a priority.

Swan, also the Labor Party president, is speaking to The Weekend Australian in Cbus’s new headquarters. It’s located on Lonsdale Street, in the middle of Melbourne’s super fund hub with a string of others including giant AustralianSuper, IFM and HESTA nearby. Collectively, this unglamorous CBD strip is home to Australia’s biggest economic force, controlling hundreds of billions of dollars invested on behalf of millions of people.

But Swan is focused on the job at hand. Beyond the ASIC case, he says it’s important to learn the lessons of what happened and lift processes around it.

“We have left no stone unturned. We don’t want to see that happen ever again,” Swan says.

While he won’t be drawn on specifics, it is understood the external provider Cbus used to process its insurance claims – previously called Link Group but since rebranded to MUFG – forms much of the focus in Cbus’s own investigation of what went wrong.

The delays are at odds with Cbus’s own record on payouts. The insurance was to help protect the risky nature of the work around construction sites. This is why the fund has been visibly shaken by the action. In recent years, the acceptance rates on disability and death claims have run at about 96 per cent. Almost $300m in benefits were paid in 2023.

Swan concedes the rush for industry funds to merge and bulk up in recent years means the industry in part had taken its eye off the ball around non-financial risks, ­leaving the services infrastructure designed to look after fund members falling short in some parts.

However, he strongly rejects suggestions the low-cost model that for decades has given funds a competitive edge over commercial rivals is starting to come undone. But it does raise questions around outsourcing some core parts of the funds business.

Cbus’s other reputational king hit came in August last year from one the fund’s own backers: the now-disgraced CFMEU. Swan says he welcomed the scrutiny from the experience, because he believes it showed that the governance in place around the fund was working.

All three CFMEU-linked representatives on the Cbus board resigned as the disgraced union was taken over by an administrator. (One member, Jason O’Mara has been reappointed on behalf of the CFMEU administrator.)

ASIC deputy chair Sarah Court has been leading the Cbus legal actions Picture: John Feder

Financial regulator APRA then commissioned Deloitte to consider whether the fund’s directors met the fit and proper test, as well as any influence the CFMEU may have had over the fund. Swan points out that the ­Deloitte report gave all the Cbus directors a pass, including those nominated by the CFMEU. (However, it did raise questions over some of their experience.)

It is understood that the CFMEU had opposed Swan being appointed as independent chairman two years ago, but others on the board backed the former ­Labour treasurer into the role.

Swan says the board operates as it should – with robust oversight of those appointed to manage the fund.

Whether it’s funding a wind farm or buying shares, Swan says the board doesn’t make investment decisions. That all comes down to Cbus’s chief investment officer and the CEO, and is subject to well-established risk assessments.

“Our stakeholders don’t drive investment processes,” he says.

Whether the directors are union-nominated or from employer groups that are also backers of the fund, Swan says the board is committed to getting the widest range of experiences. However, he remains a defender of the equal representation model – where nominated directors, except two independents, are split equally between unions and employers.

He argues this representational model has served Cbus’s members well by delivering consistent returns over the long term. Nor is it unique to Australia, with the model being “very successful around the world”, he adds.

The $100bn in funds makes Cbus one of a handful of so-called mega funds. It is the sixth biggest of the industry funds, but is a long way from market leader, the $360bn AusSuper. Others include Australian Retirement Trust ($240bn), UniSuper ($115bn) and Hostplus ($97bn).

Kristian Fok was recently named Cbus chief executive officer. Picture: Britta Campion

The target was put in place as part of a five-year plan under new-ish chief executive and long-time chief investment officer Kristian Fok.

The tonne came about earlier than forecast, helped by the absorption of smaller industry fund Media Super, and this week it ­finalises its merger with NSW-based Energy Industries Superannuation Scheme. There has been aspirations to hit the $200bn target, but Swan is backing away from that, saying the focus is not on getting bigger, it’s on service and delivering the right advice to the many members now approaching retirement. This suggests further fund mergers are off the agenda for now.

“We don’t aim to be a mega fund. We want to be a specialist fund,” he says. “We don’t want a situation where there’s three or four mega funds operating in Australia. It’s important to have a good mix of funds.”

Given Cbus emerged out of the construction industry, its investment portfolio has a skew to commercial property, which in Australia has a history of going through boom and bust cycles.

“We see that [property] as a strength,” he says. There is innate knowledge in the fund around property and projects. Cbus also has a property development arm, which directly invests in new commercial and big-ticket apartments across Australia.

Swan says property is going to be cyclical – but so are other asset classes, including equities and bonds. The job of Cbus is to build a long-term portfolio designed to see through the swings.

Cbus is becoming a property developer in its own right.

Last year, Cbus’s default growth option delivered an 8.9 per cent return, and has annualised 7.7 per cent over a decade. Returns from property last year delivered 12.9 per cent and has annualised 12.2 per cent on a 10-year measure.

Swan was treasurer in the Rudd government as the Global Financial Crisis hit, and he saw first-hand how superannuation savings insulated the economy.

“The formation of super has been stunning in impact – not only on members’ lives but also the economy,” he says. “It represented a buffer for Australia during the GFC, and it spreads wealth and opportunity right across the fabric of Australia.”

Big super is in the firing line, accused of pushing equal opportunity or green agendas. But Swan is quick to hit back. “It makes sense to be respectful of people. It’s good economics to be respectful,” he says. “Are we hung up on it? No. From our part, it makes sense to invest in good employers. They are more productive and profitable and consistently deliver better returns for our members.”

The same applies to renewables, which he says also makes good economic sense. Despite all the noise, a fund like Cbus will only invest in renewable energy or other projects where it stacks up financially. Cbus is a cornerstone investor eyeing an offshore wind project in Victoria’s east.

“This is not a frolic … it’s all about long-term sustainable returns”.

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Originally published as Wayne Swan plans fightback over hits to Cbus reputation