Pandemic puts the brakes on AustralianSuper expansion

AustralianSuper CEO Ian SIlk. Illustration: John Tiedemann.

The economic lockdown due to the coronavirus has slowed AustralianSuper’s relentless march towards $200bn in member assets by the end of this financial year.

The nation’s biggest super fund will still end up with about $180bn in the till, which is well on the way to a revised target of $300bn by 2025.

Contributions, however, have slowed, with fewer people in paid employment, or getting by on reduced hours.

The halo effect for the big industry funds from a trouble-free run in the 2018 financial services royal commission compared to the for-profit funds has also weakened.

After royal commissioner Kenneth Hayne completed his demolition job on the banks, AustralianSuper’s net flows would top $2bn in some months.

That’s now retreated to about $1bn a month, although an extra $17bn will line the fund’s coffers in the year to June 30, excluding investment returns.

Chief executive Ian Silk’s forecast last month of the first negative return in 11 years for the balanced option now looks a little pessimistic after the market’s spectacular run.

The return is now looking like it will be around zero, plus or minus 1 per cent.

For Silk, the main risks include a dreaded second wave of COVID-19, although he rates the prospect of a second lockdown as very low because of the huge scale of the economic impact from restrictions.

The other risk is the economy failing to pick up the slack from Canberra’s withdrawal of its assistance packages by October.

“We’re in uncharted territory so it’s difficult to be confident, but I think we should expect a stuttering recovery,” he says.

Silk and his team are working on a 10-year strategy, which will kick in after a year or so once the current five-year blueprint expires.

Achievement of the fund’s objectives will depend on three pillars — the ability to reap the benefits of scale, investment performance, and maintaining its reputation and social licence.

Silk has big plans to improve returns by accelerating the trend towards internal asset management from just over 40 per cent of the fund to more than 50 per cent.

A resumption of international expansion is also on the agenda.

Pre-COVID, a fit-out for an office in New York was under way, with the executive chosen to lead the team packed and ready to go when borders were closed.

Expansion of the fund’s London presence was also put on hold.

AustralianSuper maintains a small office in Beijing.

Internationalisation of asset management will be ramped up because it’s benefiting members — about $150m has been saved over the past seven to eight years since the process started.

Unsurprisingly, Silk remains a vociferous opponent of any extension to the early access scheme, describing it as a “once-in-a-century” response to the government’s characterisation of the pandemic as a once-in-a-century event.

A win for Westpac

It ain’t over in the civil penalty game until the final cheque is signed, but Westpac still managed to chalk up a tactical victory in Wednesday’s court skirmish with anti-money laundering agency Austrac.

Federal Court judge Jonathan Beach’s not-so-subtle rebuke of Austrac for trying to max out Westpac’s charge sheet when it already faces more than 23 million AML contraventions would have been quietly celebrated by the bank’s legal team.

Leverage is all important in a commercial negotiation with up to $1.5bn at stake.

Austrac had it last November when it lodged a damning statement of claim, including the horrific allegation that payments facilitated by Westpac on behalf of 12 customers might be linked to child exploitation.

The bank regained some leverage when Ziggy Switkowski’s board accountability report found that Austrac’s allegations included matters that were unknown to the bank’s leadership.

Only days later, however, it switched back to Austrac.

An internal review by Westpac led to more suspicious matter reports in relation to 272 customers possibly connected to paedophilia, with the bank forced to reveal that Austrac had flagged an amended statement of claim.

Justice Beach, who has a well-earned reputation for invoking the model litigant convention against the commonwealth, pierced the gloom enveloping Westpac.

While regulators would continue to regulate, and Austrac would have to investigate a never-ending stream of suspicious transactions, he agreed with Westpac’s silk John Sheahan that new issues had to “stop being loaded on to the existing proceedings”.

“I do think it’s time to close this pleading, for want of a better word,” he said.

“We do need to guillotine it at some stage.”

The subtext was not only that the court wanted to bring the case on. Also, it wouldn’t entertain unjustified delays, or allow Austrac to keep tightening the screws in settlement negotiations by expanding the charge sheet.

Sheahan flagged that locating account statements for each of the 272 customers was a time-consuming manual process which could require Westpac to produce tens of thousands of documents.

Austrac would then have to investigate further potential breaches before it could determine whether an amended statement of claim was justified.

Justice Beach set down a strict timetable for the regulator.

Any updated statement of claim had to be filed by August 14, with the next case management hearing on September 18.

If the parties failed to come up with an agreed statement of facts and admissions, laying the groundwork for a commercial settlement, a trial would kick off early next year.

Westpac has already made a raft of admissions.

However, it will contest Austrac’s allegation that it breached section 81 of the Anti-Money Laundering and Counter-Terrorism Financing Act by failing to implement a program to identify, manage and mitigate such risks.

Austrac silk Wendy Harris noted on Wednesday that ASIC’s investigation into the bank was continuing, with the prudential regulator probing whether Westpac had breached the Banking Act.

On cue, APRA later said it had delegated certain enforcement powers to ASIC so the agencies could avoid litigating related ­matters.

ASIC would therefore investigate matters on APRA’s turf, including obligations under the Banking Executive Accountability Regime, and standards of fitness and propriety under the Banking Act.

The key message to Austrac from Wednesday’s court hearing was that it only gets one more chance to plead its case.

And it should hurry up about it.

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