Chickens come home to roost over union ad

Australia’s biggest industry super funds will be grilled over their involvement in the controversial ‘fox and henhouse’ ad campaign.

The Industry Super Australia advertisement portraying banks as the fox in the henhouse.

Australia’s biggest industry super funds will be grilled over their involvement in the controversial “fox and henhouse” advertising campaign by the lobby group for the union-and-employer-backed industry fund sector, Industry Super Australia, which accused the government of putting Australia’s savings at risk.

The advertisement will be just one of the issues relating to the web of businesses and assets jointly owned by the industry fund sector to be combed through by the royal commission. The commission has also chosen to question not-for-profit funds on the ownership of online news site The New Daily and asset manager Industry Funds Management’s botched investment in Pacific Hydro.

But the $600 billion industry fund sector has already been granted a significant victory over the rival for-profit retail funds, with counsel assisting the royal commission, Michael Hodge QC, yesterday declaring there were “fewer examples” of misconduct worth publicly trawling through at Kenneth Hayne’s year-long inquiry.

“In a number of cases, though certainly not all, the conduct of the industry funds which we have identified as warranting consideration during the oral hearings, is very nuanced,” Mr Hodge told the royal commission.

Due to the industry fund sector’s ties to the union movement, the royal commission’s hearings into the not-for-profit sector are being closely watched in Canberra.

Many in the Coalition looking to overhaul the super sector are driven by a claim that $50 million has been paid by industry funds to unions over the past decade. For their part, the funds say this is mainly $40,000 to $50,000 in annual directors’ fees to appointed board members, who give the money to their unions as standard practice and do not take it as income, while other money is spent on marketing.

The $46bn CFMEU-backed Cbus fund was even given a leave pass from appearing at the commission after a careful trawl through the fund’s payments to unions. Mr Hodge referred to a KPMG review of the fund’s payments, which made recommendations to overhaul the fund’s practices.

“Although we will not explore this issue with Cbus, we will explore the issue of payments to sponsoring organisations or affiliates with other industry funds that will appear during this round of hearings. It is particularly important that such payments be carefully monitored because of the obvious potential for conflicts of interests,” Mr Hodge said.

The industry funds were also given the all-clear on the transition of funds in high-fee legacy products to low-fee MySuper products during the four-year period since the Gillard government laws were passed.

Most of the alleged misconduct by the industry funds to be examined relates to the sector’s shared asset vehicle, Industry Super Holdings, a company owned by more than a dozen of the largest industry funds. AustralianSuper is the largest shareholder, followed by Cbus, HESTA and Hostplus. The vehicle controls the lobby group Industry Super Australia, formerly owned ME Bank, and controls the loss-making news venture The New Daily, and the global asset manager IFM Investors.

ISA in March launched the “fox and henhouse” TV advertisement, which depicts the big banks as foxes descending on a chicken coop, with the government portrayed as a man opening the door to allow the foxes to feast on Australia’s nest eggs.

It was launched to pre-empt a government plan to require industry funds to employ more independent directors on their boards as the Productivity Commission looked at breaking open the default model for super funds, which favours the industry fund sector.

The advertisement infuriated the government and the Productivity Commission, and prompted an investigation by the Australian Prudential Regulation Authority.

“How does it maintain retirement benefits?” Mr Hodge asked.

“… We will explore this issue with some industry funds.”