Sooner or later one of the big industry funds was going to stumble: But it’s only when that stumble costs money – when it threatens to hit members in the hip pocket – that investors suddenly pay attention.
Cbus, the $94bn fund with nearly one million members, is now the canary in the coal mine for anyone with money in “big super”.
The shock move by ASIC to sue Cbus comes after up to 10,000 Cbus members allegedly had death benefits or disability payments delayed by the fund, despite repeated warnings from the regulator.
That’s millions of dollars kept from everyday members for no good reason.
Cbus appears to have displayed an arrogant disdain for regulators – and towards its own customer base – in this incident. Investors have seen this before, but historically we got this from big banks and not big super funds.
The dragging out of payments due to members follows the recent downgrading of Cbus by ratings agency Morningstar; that downgrade (from average to below average) was explained by poor management and specifically, by the fund’s links to unions and politicians.
The political ties at the fund are personified by its chairman Wayne Swan, the former Labor federal treasurer and national president of the ALP.
And although Cbus seems to be literally collecting regulatory investigations – separately the prudential regulator APRA is investigating both “questionable expenses” and links with the CFMEU – it’s the risk that mounting problems at Cbus will damage its financial performance which is the biggest issue.
Emboldened perhaps by a 10-year average return of 7.7 per cent which is on par with its peers, Cbus has been able to snub its nose at everything, from appearing before Senate committees to answering member complaints.
But it has been able to carry on in this way because of one very simple factor – like all big funds, it’s answerable to nobody in particular: This is the screamer in the Cbus story and it is the biggest threat to member money across the entire $3.5 trillion super system. At worst, the big funds are a law unto themselves.
As UNSW Business School associate professor of financial Mark Humphery-Jenner puts it: “The Cbus incident shows beyond doubt there was a lack of oversight at the fund.”
When the architects of our financial regulation system set out to construct the policing of the financial system in 1995 they created three arms – the Reserve Bank, APRA and ASIC. But they forgot one thing: Super funds were going to mushroom off the back of compulsory super transfers.
Thirty years later the funds are big fish in a small pond and every year they enlarge because 11.5c in every dollar made by every worker ends up in a super fund such as Cbus.
Meanwhile, if a fund cocks up, the fund generally gets to deal with it out of the public eye. This is exactly what happened last week when the second biggest fund in Australia, Australian Retirement Trust, had a technical failure that stopped payments going through to its own members for days.
ART never announced the incident, no regulator ever rang a bell on it and only affected members were informed directly.
Big funds are too big to fail their members in the way we have witnessed at Cbus and Art. What’s more, there is every reason to suspect many other issues lurk inside many other funds.
It’s time for an independent non-political inquiry into how big super funds are being run.
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