ACTU lobs last-ditch effort to block KKR’s bid for CBA’s super fund

The country’s largest trade union body has launched a last-minute attempt to block KKR’s bid for Commonwealth Bank of Australia’s superannuation business, warning the US private equity firm’s aggressive track record for cost cutting will hurt members.

CBA announced last May it had reached a deal to sell 55 per cent of its super fund, Colonial First State (CFS), to KKR for $1.7 billion giving it controlling ownership, as part of a strategy to focus on core banking services.

CFS had more than 770,000 members totalling $144 billion in assets under management, representing around 4.7 per cent of Australia’s total superannuation assets.

ACTU assistant secretary Scott Connolly has issued a last-ditch effort to block KKR’s takeover of Colonial First State. Credit: Supplied

The Australian Council of Trade Unions (ACTU) has written a letter to Treasurer Josh Frydenberg claiming the deal “portends a dark future” for Australia’s superannuation system and calling for intervention.

“Foreign-based corporate raiders with chequered pasts buying workers’ retirement savings with the intent to extract as much profit as possible is an appalling future for the stewardship of workers’ money,” the letter, obtained by The Age and Sydney Morning Herald, said.

The KKR deal is pending approval from the federal government’s Foreign Investment Review Board (FIRB) and the Australian Prudential Regulation Authority (APRA). The ACTU wants the Treasurer to terminate the transaction, warning it will lead to jacked up fees and poor investment outcomes for members.

“KKR has a very aggressive track record in the marketplace and a really no holds barred approach to taking on and extracting their return from the assets they invest in,” ACTU assistant secretary Scott Connolly said. “Let alone the level of concern we have about some of their previous forays into pensions systems.”

The private equity heavyweight is among a group of four investment firms being sued in the US courts after it allegedly sold risky investment products to a super fund for government workers, Kentucky Retirement Solutions.

US court documents filed in July last year allege KKR targeted “underfunded pension funds” to sell illiquid, exotic financial products that had “excessive and hidden fees, poor investment returns and/or large investment losses”.

The court documents allege KKR executives personally benefited from the use of privately funded jet planes to conduct deals with the US pensions fund, and Mr Connolly said this was further evidence the company was not suitable to run an Australian superannuation fund.

“Even if we could reconcile ourselves to the fact that a foreign-owned private equity firm has a role to play in our superannuation system, KKR being that entity would be another stretch in terms of the members’ best interest,” Mr Connolly said.

The lawsuit against KKR over alleged breach of fiduciary duties is the second case over the same matter, the first was filed in 2017 but was ultimately thrown out.

A CBA spokesman said the bank and KKR were committed to investing in CFS to make it “one of the most competitive superannuation and investments businesses in Australia, which will bring benefits to members”.

The spokesman added CFS is managed by a trustee with a majority independent board, and pointed to a reduction in fees that has saved members $215 million over the past 18 months.

The ACTU has also filed freedom of information requests with the Treasury department to probe any lobbying efforts on behalf of KKR or CBA related to the transaction.

Former prime minister Malcolm Turnbull was appointed as an advisor to KKR in 2019 and Mr Connolly said he was “very concerned” about the company’s “connection and collaboration” with the federal government.

“We’ve got a controversial potential market entrant coming into our superannuation system,” he said. “It struck us as concerning that there might be something else at play here in terms of the government’s ambition.”

Mr Turnbull said he had not been involved in the deal and could not comment on the role of private equity in the superannuation system. “I am an advisor to KKR and I don’t speak on behalf of them,” he said.

The Australian Financial Review has reported Westpac is looking to sell its superannuation business, BT, with potential suitors including private equity firms. AMP has also put its assets up for sale, which could include offloading its superannuation business.

Mr Connolly said the government should ban private equity firms altogether from buying superannuation businesses, claiming these types of firms take a notoriously cut-throat approach to maximising profits, which is incompatible with the best interests of members.

“Is this the future of Australian superannuation? Are we going to see retirement savings off-shored and sold off to the highest bidder?” he said. “It’s fox in the hen house on steroids.”

Minister for Superannuation, Financial Services and the Digital Economy Jane Hume during Question Time at Parliament House in Canberra on Tuesday 16 February 2021. Credit: Alex Ellinghausen

Assistant Minister for Superannuation Jane Hume said all super funds were subject to the same duties, regulations and obligations.

“Just because the corporation behind the trust has a profit motive, doesn’t mean it cannot deliver good retirement outcomes for members,” Senator Hume said.

KKR declined to comment. Mr Frydenberg did not respond to request for comment. APRA declined to comment on the deal or the role of private equity in superannuation.

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