An agent of change: Greg Combet’s super powers
The ex-union man and MP isn't afraid to use the powers he has in our financial system.
Greg Combet would be entitled to wonder what might have been. Six years ago, in the dying days of her prime ministership, Julia Gillard told Combet she would stand aside if he were prepared to run against Kevin Rudd for the Labor leadership. Combet had been thinking about his political future for some time and the Gillard offer “forced me to make a decision”. He declined and soon left federal parliament.
Combet, the young mining engineer who went on to lead the union movement before switching to politics and ascending to federal cabinet, says he doesn’t look back and think he could have been in the Lodge.
“No I don’t, because I made a hard-headed decision,” he says. “I did have some health problems. I just decided I wasn’t really strong enough to do a job as demanding as that any more. As much as I love the Labor Party and the labour movement, it was better for me personally. There were other reasons as well but it was important that I was honest with myself about it.
“To be frank, I think Bill Shorten is a lot better at politics than I am. I am really pleased at his success. He’s really well equipped for the job I think and certainly much better than I would have been. We were always kind of pitted against each other as rivals. He’s a good bit younger than I am (Combet is 60 and Shorten turns 52 on May 12) and I used to think that a bit odd at times. We were always cast that way a bit. We have certainly become closer since I left politics.”
‘To be frank, I think Bill Shorten is a lot better at politics than I am’
Combet pauses, laughing at his last observation, before adding: “I am really pleased for him and he’s worked his guts out for the past six years and deserves success.”
Combet has built his own post-political career and is now a significant figure in the $2.8 trillion superannuation system. In December, he took on the chairmanship of Industry Super Australia, which manages projects on behalf of 15 industry super funds, and became chairman of its jointly owned funds management company, the $113 billion IFM Investors.
The growth and size of the superannuation system is mind-boggling.
“I certainly think about it, alright,’’ Combet says in an interview with The Deal. “The largest component of it is the self-managed super sector and that’s concentrated very much among high-wealth individuals. The industry funds are the second largest and we are just outstripping the retail sector now.
“It’s a very, very big system and it’s larger than the market capitalisation of the ASX and it’s larger than Australia’s GDP by a decent margin and it will grow more rapidly than the ASX and GDP. By 2030, another 11 years away, it might be $5 trillion.”
Could he envisage super funds moving to take full ownership of companies rather than investing in them in shares?
“Just consider the size of the system and the fact that it will be multiples of GDP potentially,” he says. “It means the savings that it represents have to find investment outlets and increasingly that will be global. When it gets to this sort of scale, you have got to find opportunities offshore to invest the money as well as domestically.
“So that’s why IFM Investors has been globalising and we want to obviously work with the industry funds sector to help to develop the opportunities to find successful investments offshore. But domestically you look at it and think, ok, we are long-term investors. We want to know a company very well in which we are investing a lot of people’s retirement savings. Unlisted equity I think will be an increasing feature of the investments we make and sometimes that might mean delisting a company.”
Combet references AustralianSuper’s bids for education provider Navitas and private hospital operator HealthScope, both done in partnership with private equity fund BGH Capital.
“You might see a little more of that from time to time,” he says. “I’m not saying that’s some major specific thing but it’s also not a bad thing. If those companies can be well run and run on a long-term basis to deliver value for people’s retirement savings, then it can be a good thing for the economy. There are risks in every investment. The stockmarket is inherently very risky. An unlisted asset might be less so.”
Combet is keen to advance the use of superannuation in big infrastructure projects and IFM Investors is leading a consortium to build a fast rail link to Melbourne Airport.
“We are now turning our mind more to how we can collaborate with governments and other businesses to take some greenfield risk and develop infrastructure for the long term for the country,” he says. “That requires a collaboration to be able to do that. Obviously it has to meet public policy requirements and make sense from a transport infrastructure viewpoint, for example, or planning in the electricity sector. It’s got to make sense from a public policy and economic standpoint as well as make a good investment.
“That is the way we are approaching the fast rail link from Southern Cross station to Melbourne Airport. We have planned that proposal to complement and support the development of public transport infrastructure so it’s specifically fast rail to the west of the state. So we’re thinking like that for the future for infrastructure in Australia and we’re really keen to invest.
“There may be other transport projects. Everyone is circling around Western Sydney Airport and thinking, ok, that’s going ahead, what does that mean for the infrastructure needs in Sydney?”
Combet says the findings of the banking royal commission and the Productivity Commission report which found a 2 per cent performance gap between the industry funds and the retail funds have changed the industry landscape.
“The royal commission has shown up the inherent conflict that the trustees of the retail funds have been experiencing — that is, the interests of their parent entity to drive fees and commissions and shareholder return out of the superannuation product, but, at the same time, the trustees having a duty to the best interests of the members,” he says. “I think the royal commission has laid that conflict absolutely bare. I think it’s been to the profound discredit of the retail funds. The second thing has been the Productivity Commission, which has validated what the industry funds have been saying for years about out-performance by the industry funds of the retail sector. It’s to the tune, or in the order of, 2 per cent per annum, which is very significant to people’s retirement savings.
“I think we have a much greater level of analysis and insight into how the superannuation savings sector is operating and, quite legitimately, it’s contributing to a greater focus on governance, on fees and on commissions. So the reforms the royal commission has recommended, I think they are very important to be seen through.
“They will be challenging for the business model of the banks and AMP — the way they have had their wealth divisions over the last 20 years — because they’re based upon conflicted remuneration and the royal commission recommendations look to address that problem.”
While describing the commission’s empirical analysis as sound, Combet does not support its contentious proposal for prospective employees to be provided with a list of the 10 top-performing super funds to choose from. He hopes the proposal is dead in the water. “They want to get rid of a system that’s been low-cost and efficient, and create this 10 best in show which just creates a rumble among the top performing funds instead of addressing the real issue, which is the chronic underperforming funds. If you create that sort of rumble at the top, people will start changing their strategic asset allocations, spending more on marketing. It will change the behaviour of the most successful funds potentially and I think that’s a bad thing. Really, the major public policy challenge is to start at the bottom (which is) chronic underperformance. Anyone who is thoughtful about the system would dismiss it. It’s a silly recommendation and really unsupported by any analysis.”
Industry funds have been in regular conflict with the federal Coalition government, including over moves to weaken union representation on boards. Treasurer Josh Frydenberg recently wrote to the Australian Prudential Regulation Authority, asking whether it had the power to ensure union-appointed super trustees did not pursue political objectives at the expense of members’ interests. The intervention by Frydenberg came after the ACTU backed a maritime union campaign for industry funds to pressure BHP and BlueScope Steel into reversing a decision not to renew a contract for two Australian-crewed vessels, and after AustralianSuper, where ACTU president Michele O’Neil is an alternate board director, pressured global commodity group Glencore to cap its coal production.
APRA said in March that super fund board trustees must undertake their duties “free from the influence of sponsoring organisations”.
“The ACTU and the unions are entitled to express their view, I don’t think APRA is questioning that,” says Combet, a former ACTU secretary. “That’s their day job. They are representing people. They contribute to public policy debate about super and many other issues. But once you go into a superannuation boardroom, you’re in the realm of trust law, you’re a trustee for people’s money. So in there you’ve got the sole purpose and you must look at everything through a member benefit lens, and that is the benefit to the superannuation fund members.
“This has been a very successful collaboration between business and unions, the industry super sector. (It’s) an equal representation model and it takes a two-thirds majority to make a decision if it’s otherwise not by consensus, obviously. That structure has worked really well for 25 years and it is a strong protection against partisan issues being brought inside the boardroom.”
He says he has no doubt that O’Neil, when she goes into the boardroom as an alternate director, understands her trustee duties. “Just because someone makes a speech or writes a letter doesn’t mean that all of a sudden these multibillion-dollar institutions run around doing someone’s bidding,’’ he says. “It just doesn’t work like that.”
That said, Combet argues that labour relations and industrial relations practices can be legitimately scrutinised “within a proper investment and member interest lens”.
“There is legitimate territory, of course, for examining environmental, social and governance issues, including labour relations from an investor standpoint, in the interests of the members of the fund,” he says. “That conversation’s gone on for many years, and it’s not only, of course, among industry funds. It’s investors all around the world. Looking at climate risk and the long-term risk associated with particular assets is really an important thing for an investor.”
He cites a 2017 dispute where unions campaigned against IFM Investors and AustralianSuper after electricity distributor Ausgrid embarked on job cuts. Ausgrid, which is majority-controlled by the two funds, outsourced jobs to an Indian consortium and compelled some of the affected Australian workers to go to India to train their foreign replacements. It closed a call centre and axed staff.
“While that was a difficult process and we copped some criticisms, including me personally, at the end of the day, there’s a new enterprise agreement in place,” Combet says.
Workers got pay rises. Redundancies were voluntary, with enhanced payouts. There were new training programs and an improved classification structure to provide greater multi-skilling and career enhancement.
“We approached it in a disciplined way as investors but with respect for the workforce. It is a good practical example of how we do try to manage these things when you get to the real investment level. A lot of this conversation takes place in the stratosphere but the rubber hits the road when you are down on the ground.”
Combet says he is “feeling pretty good” about his latest career transition and moving on from politics. We talk about his entry into politics in 2007 when Rudd, no fans of unions, told Combet: “You are going to have to be deunionised first.”
“He’s a funny guy,’’ Combet says of Rudd. “I saw him in Brisbane about six months ago. He was reflecting on some of those things and kind of implied that maybe he should have dealt with that a bit differently, not just with me but with me and Shorten and people like us coming in. He was taking the counsel of people like (former Labor politician) Mark Arbib and I think he realised maybe he should have taken some counsel from others too. Mark Arbib’s advice didn’t get him very far.
“It’s taken some years (post-politics) to really settle and find my feet but I have been very fortunate to have the opportunity in the industry funds. I feel proud and privileged to be in the roles I am in now. They are big important institutions. I am very committed to them from a personal values point of view and I really appreciate the support that I have had to attain these positions.”
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