AustralianSuper blocks its own members from buying Origin Energy shares

The super fund giant that helped foil a $20bn ­takeover offer for Origin Energy, has banned its own investors from buying shares in the electricity and gas company.

AustralianSuper, the fund giant which helped foil a $20bn ­takeover offer for Origin Energy, has banned its own investors from buying shares in the electricity and gas company.

The unprecedented move by Australia’s biggest super fund captures the dilemma facing major funds, which are being ­increasingly aggressive in the local market while also trying to offer a range of investment ­options to investors.

Using a little-known in-house rule that allows the fund to “place restrictions” on share trading by its own members, Australian Super applied the “buy” restriction earlier this month.

AustralianSuper has been in the thick of a takeover battle over Origin Energy, the fund repeatedly rejecting offers made for the power giant over recent months by the Brookfield-EIG consortium.

AustralianSuper is the biggest shareholder in Origin, which is currently reviewing yet another version of an offer from the Brookfield-EIG field consortium in a long-running saga which has lasted almost a year. The foreign suitors have criticised AustralianSuper for its lack of engagement with the bid.

It is understood the specific trigger for the ban on Origin relates to a clause known as 3.3 in the fine print of the fund’s “member direct” product which allows it to restrict share purchasing or share buying when Australian Super’s aggregate holding of a share is approaching the takeover threshold of 20 per cent (where the fund would be forced to bid for the takeover target.) The Origin Energy restriction is on “buying” only.

It is understood this is the first time AustralianSuper has activated the rule, while industry advisers say they are not aware of it occurring at any other fund before either.

But the move shows how major super funds cannot have it both ways: being both an active player in the sharemarket while offering investors a product which suggests they can act as independent investors.

Most of the major super funds now offer “tailored” options, which also have their own terms and conditions not widely understood by investors, though AustralianSuper is easily the biggest player in the space. The trading volumes of individual investors inside funds is also difficult to track because, the way it works, shareholdings are not actually owned by individual investors.

As AustralianSuper remind its investors: “Investments in Member Direct are held under custody by AustralianSuper meaning members don’t own shares under their individual name.”

A key reason big super funds created extended menu options such as Members Direct was to stem the outflow of money going to self-managed super funds.

According to Australian Super, Members Direct is the option that gives members the greatest control – where they can invest in a range of listed securities including shares on the ASX 300, exchange-traded funds and listed investment companies.

A scheme meeting to vote on the Origin takeover deal was dumped last week after it became clear the consortium did not have enough support to get a transaction over the line. Shareholders now have another meeting on Monday to consider a Plan B vote, although Origin is yet to conclude whether to support the bid.

The timing of the restriction comes as senator Andrew Bragg is to chair a new Senate Inquiry into “improving consumer experience, choice and outcomes in the retirement system”.

Under the terms of reference for the inquiry, which will report by June 30 next year, the Senate committee has the scope to range across all matters relating to retirement, from super products to insurance and aged care.

Big super funds such as AustralianSuper and Australian Retirement Trust have also been under question in recent weeks over their “bonus payment” arrangements where investors are offered cash rewards for staying with the funds – the payments are made to investors in the funds who stay through to retirement.

As The Australian reported recently: “Here’s how it works: If you are in a fund and you get to the point of retirement then you are about to move into a tax-free phase. In that phase most people don’t have to pay tax, including capital gains tax. But some funds have a booster or bonus, where the fund has – on your behalf – “saved” up a nest egg for you, if you leave the fund and get hit with CGT. However, if you stay and retire with the same fund that nest egg needs not be paid over to the tax office, so instead you get ‘rewarded’ with a bonus payment. But here’s the catch; if you leave the fund (let’s say to start a self-managed super fund) you don’t get it!”

Whether blocking the ability of fund members to buy shares or creating “product features” that entice them to not leave a fund were in the best interests of members might well become issues for the Senate inquiry, sources said.

Originally published as AustralianSuper blocks its own members from buying Origin Energy shares