11.2 Evidence

11.2.1 AustralianSuper

Investments

AustralianSuper invests in the IFM Australian Infrastructure Fund (the Infrastructure Fund), an investment portfolio that provides exposure to infrastructure assets. One of those assets was Pacific Hydro Pty Ltd, a renewables development company.[1] Other assets include Melbourne Airport, Port of Brisbane and Southern Cross Station in Melbourne’s central business district.[2] Historically, the Infrastructure Fund was the main way that AustralianSuper Fund invested in unlisted Australian infrastructure assets.

IFM Holdings Pty Ltd is the investment manager of the Infrastructure Fund. IFM is a fund manager owned by a company called Industry Super Holdings (ISH). ISH is in turn owned by the trustees of 27 industry super funds, including AustralianSuper.[3] It has approximately $100 billion in funds under management. IFM, through the Infrastructure Fund, was the sole shareholder in Pacific Hydro until IFM sold Pacific Hydro in 2016.

AustralianSuper is not the only investor in the Infrastructure Fund, although it is a significant one. It regularly engages with IFM regarding the performance of the Infrastructure Fund, and has a representative on the Infrastructure Fund investor advisory committee.[4]

In 2011, AustralianSuper thought that its investment in Pacific Hydro was underperforming. It conducted an internal review, as it ordinarily did when an investment underperformed. The review sought to understand the reasons for investment underperformance, and to work out what to do about it.[5] As a result of the review, AustralianSuper told IFM that it wanted to reduce its exposure to Pacific Hydro over time.[6] AustralianSuper then became more heavily engaged with IFM on the subject of Pacific Hydro’s performance, and, from time to time, AustralianSuper received direct presentations from Pacific Hydro’s management.[7]

In mid-2014, Pacific Hydro’s performance deteriorated and its value was written down significantly.[8] IFM initiated a strategic review of its investment in Pacific Hydro. AustralianSuper was significantly involved with that review. It told IFM what it expected would be the nature and scope of that review. In particular, AustralianSuper told IFM that the review should cover the governance of Pacific Hydro and Pacific Hydro’s place in the Infrastructure Fund’s portfolio.[9] AustralianSuper remained involved as the review progressed, and from time to time representatives of AustralianSuper met with the IFM review team.[10]

The review resulted in a number of changes at Pacific Hydro. Among other things, several directors of Pacific Hydro resigned.[11] AustralianSuper thought that the review provided corrective action to the business, which improved its operations and allowed the asset to be prepared for sale.[12] In 2016, the Infrastructure Fund sold Pacific Hydro, generating returns significantly higher than its valuation before the write downs in 2014. Ultimately, the return over the life of the Infrastructure Fund’s investment in Pacific Hydro was approximately 7.2%.[13]

The second investment issue concerned the Fund’s cash investment option. Between 2016 and 2018, members invested in this option received an average return between 2.35% and 2.74%. The return of 2.35% and 2.74% was net of a 0.05% investment management fee.[14]

In 2018, APRA wrote to AustralianSuper and other RSE licensees expressing concern that cash options offered by some superannuation funds included significant proportions of non-cash assets.[15] APRA was concerned that members who invested in such options would expect the return and volatility of cash, but might, in fact, be invested in non-cash assets with different characteristics. That is, APRA’s concern was that members might not be getting the investment they had bargained for. At the time, AustralianSuper’s non-cash securities comprised 1.84% of its cash accumulation option.[16] Although this was a relatively small proportion, having received APRA’s letter AustralianSuper instructed its investment manager to divest all non-cash securities. The exposure to non-cash securities within the cash options is now zero.[17]

Spending

The first spending issue examined related to a publication called The New Daily. In the second half of 2012, AustralianSuper received a proposal from Industry Super Australia Pty Ltd (ISA) to participate in the establishment of an online news publication for the benefit of industry super members.[18] ISA provides, among other things, collective marketing and research services to many industry funds.[19] AustralianSuper is a shareholder in ISA’s parent company, ISH.[20]

AustralianSuper considered the proposal on the basis that it was a marketing strategy, not an investment. It considered the publication’s potential to help AustralianSuper engage its members, provide them with information about superannuation, and, ultimately, retain and grow its membership.[21] The board decided that the amount to be paid out was a relatively small amount of money, which was worth spending in the context of its multi-pronged marketing approach.[22]

AustralianSuper bought two million partly paid shares in The New Daily, at a total cost of $2 million.[23] Because the purchase was not an investment by the AustralianSuper Fund intended to generate investment returns for members, but a tool to enhance the fund’s engagement with members,[24] the subscription price was paid out of the administration fee paid by members. That fee pays for all non-investment costs of the AustralianSuper Fund, including marketing.[25] The shares were held as an asset separate from the fund, owned by AustralianSuper in its personal capacity.

In the latter half of 2015, The New Daily Pty Ltd asked its shareholders to make further funding contributions so that The New Daily could continue its operations.[26] AustralianSuper thought that The New Daily was not operating as successfully as it had hoped, and decided not to make any further contribution.[27] Some other shareholders did not contribute.[28] As a result, ISH offered to acquire all the shares in The New Daily from AustralianSuper and the other shareholders for nothing. The offer was made on the basis that IFM would continue operating the publication and shareholders could continue to use its services.[29] Because AustralianSuper had accounted for the share purchase as part of its administration expenses, the shares carried no continuing value for it.[30] And because the shares were not acquired as an asset of the superannuation fund, this disposal was at no cost to members. Accordingly, AustralianSuper thought that transferring the shares for free was fair and reasonable,[31] particularly as The New Daily would keep operating and AustralianSuper would still have access to its services.[32] The New Daily continues to be published by ISH.[33]

The second spending issue concerned the Fox and Henhouse advertising campaign. The campaign was developed by ISA, in conjunction with a number of its members (including AustralianSuper), and broadcast on television in 2017.[34] The Fox and Henhouse advertisement was the third in a series of advertisements about banks offering superannuation products.[35] Mr Silk said the advertisement was a response to lobbying by retail wealth management businesses, including banks, to change the superannuation default system. AustralianSuper thought such changes would expose workers to significant risks of mis-selling, cross-selling and conflicts of interest that would have done them significant damage.[36] Mr Silk said the campaign was an important part of the strategy to maintain industry funds as the most common default superannuation funds in Australia.[37]

ISA initially proposed to air the advertisement in 2016. However, AustralianSuper decided not to participate because it thought the Australian federal election was too close.[38] The decision was based on the timing of the election, not the substance of the advertisement.[39] The advertisement was not broadcast in 2016.

In February 2017, after the election campaign, ISA was finalising the advertisement.[40] At the time, there was no legislative proposal or Bill about the default superannuation system being considered by the Federal Parliament. Mr Silk said that the advertisement was run in anticipation of legislation that ISA, and AustralianSuper thought would disrupt the default fund system.[41] Mr Silk said that AustralianSuper’s main concern was that the anticipated changes would disadvantage members because of the risk that employers may nominate lower performing funds as default funds, as well as the impacts on the scale of the fund if it lost members.[42] The advertisement eventually aired in June 2017, with the approval of AustralianSuper.[43]

For AustralianSuper, the success of the campaign depended on the likelihood that federal politicians, including cross-bench senators, would not support legislative reform to the default system. According to Mr Silk, the campaign was successful because the objective that it was seeking to achieve has been achieved.[44] However, he added that [f]orces continue to seek to pursue that legislative change.[45]

11.2.2 Cbus

Cbus has partnership agreements with many organisations. Its partners include its shareholders who comprise both trade unions and employer organisations. Cbus pays its partners for marketing opportunities like attending conferences, putting its logo on merchandise, or advertising in trade publications.[46]

In 2015, a KPMG report found that Cbus had paid over $7 million to its shareholder organisations in five years.[47] But it also found that Cbus did not have any formal way to determine whether it was getting value out of what it paid for.[48] After receiving this report, Cbus introduced a number of process changes. It also hired an independent consultant to review the benefits of its industry partnerships program. Cbus ended up introducing a revised Industry Partnership Strategy and Evaluation Model. This model measured different variables and tried to assess the overall value of each partnership to Cbus.[49] The model was put into practice in 2016/2017, and is applied to both shareholders and non-shareholder partners.[50]

11.2.3 CSF

The CSF Fund is an industry fund, with most of its members drawn from the education, health and social welfare sectors. Since 2011, CSF has had a particular strategy to attract members from the childcare and early education industries.[51] Australian Family is a marketing and communications network organisation that operates in the early education and care sector.[52] It has provided services to CSF since 2010.

Since 1 January 2013, CSF has paid over $2 million to Australian Family for marketing, consulting and other services. Of that amount, over $500,000 related to sponsorship expenses for the Early Education and Child Care Awards.[53]

Australian Family is constituted by Family Pack Services Pty Ltd and Paul Clancy Consulting Pty Ltd (formerly known as Australian Family Magazine Pty Ltd).[54] Paul Clancy is the Managing Director of Australian Family. Jennifer Kernahan is the editor of the Australian Family Magazine and a shareholder in Family Pack Services Pty Ltd.[55]

Robert Clancy was the Head of Institutional Relations at CSF.[56] Ms Kernahan is his wife, and Paul Clancy is his brother.

Robert Clancy did not disclose to CSF the conflict raised by his wife’s position until 2015.[57] He did not disclose the conflict raised by his brother’s connection with Australian Family until July 2018, when the issue was raised in preparation for Mr Haysey’s appearance at the Commission.[58]

After Mr Clancy disclosed the position with his wife, CSF sought to manage the conflict by requiring only the CEO of CSF, Frank Pegan, to manage the relationship between CSF and Australian Family. After an employee raised a concern, Mr Pegan told them that there was no potential for conflict as all negotiations with Australian Family are only with me.[59]

But based on his review of CSF material, Mr Haysey told the Commission that he was not satisfied that the relationship between Australian Family and CSF had been entirely managed by Mr Pegan.[60] Robert Clancy had had business meetings with Paul Clancy and other CSF employees, including Mr Pegan,[61] and Robert Clancy purported to approve payments to Australian Family without authority.[62] Robert Clancy also sent his brother and wife confidential CSF communications, and engaged in continuous email communications with his brother about CSF tasks.[63]

At the time of Mr Haysey’s evidence, the CSF Board had started a review of the relationship and Robert Clancy had been placed on leave.[64] Robert Clancy’s employment with CSF was eventually terminated, after CSF had conducted further investigations after the relevant hearings of the Commission.


Use of corporate credit cards

The second issue concerning CSF’s use of trust moneys arose out of Robert Clancy’s use of his corporate credit card and the monitoring of his expenditure by CSF.

Between 2013 and 2016, Mr Clancy incurred over $46,000 of unauthorised expenses in breach of the CSF Corporate Credit Card policy.[65] An undated note which Mr Haysey believed was given to Mr Clancy by the CSF’s finance team in early 2016 said that the expenditure on his corporate credit card had to be urgently reviewed.[66] After that review, Mr Clancy paid back the unauthorised expenses to CSF.[67] However, he continued to accrue new unauthorised expenses on his card.[68]

The board was not told about the 2016 review.[69] The note was only found in Mr Clancy’s drawer after he had been placed on leave shortly before Mr Haysey gave evidence.[70] In evidence, Mr Haysey said he thought that after the 2016 review into Mr Clancy’s credit card expenses, Mr Clancy’s expenditure was reviewed and approved by more senior executives.[71] Yet it appeared that in February 2017, Mr Clancy approved his own credit card expenditure.[72]

Mr Clancy’s credit card use took place in the context of an undocumented but longstanding practice at CSF, where senior executive staff used their corporate credit cards to pay for personal travel and other minor expenditure. This was contrary to internal policies, but provided it was reimbursed it appears to have been overlooked. Mr Haysey said that the practice had ended, and previous payments were part of the ongoing review.[73]

CSF told the Commission in its submission that Mr Clancy’s employment had been terminated and that it intended to seek restitution in respect of the personal expenditure incurred by Mr Clancy that had not been repaid.[74]


[1] Transcript, Jason Peasley, 8 August 2018, 4434.

[2] Exhibit 5.62, Witness statement of Jason Peasley, 1 August 2018, 2 [1.6].

[3] Transcript, Jason Peasley, 8 August 2018, 4435.

[4] Transcript, Jason Peasley, 8 August 2018, 4436; Exhibit 5.62, Witness statement of Jason Peasley, 1 August 2018, 5 [5.1].

[5] Transcript, Jason Peasley, 8 August 2018, 4438–9.

[6] Exhibit 5.62, Witness statement of Jason Peasley, 1 August 2018, Exhibit JRP 6.1 [ASU.0018.0001.0028]; Transcript, Jason Peasley, 8 August 2018, 4439.

[7] Transcript, Jason Peasley, 1 August 2018, 4441.

[8] Transcript, Jason Peasley, 8 August 2018, 4442.

[9] Exhibit 5.62, Witness statement of Jason Peasley, 1 August 2018, Exhibit JRP 6.5 [ASU.0018.0001.0001].

[10] Transcript, Jason Peasley, 8 August 2018, 4446.

[11] Transcript, Jason Peasley, 8 August 2018, 4448.

[12] Transcript, Jason Peasley, 8 August 2018, 4451.

[13] Exhibit 5.62, Witness statement of Jason Peasley, 1 August 2018, 4 [4.2].

[14] Transcript, Ian Silk, 9 August 2018, 4540.

[15] Transcript, Ian Silk, 9 August 2018, 4540.

[16] Exhibit 5.88, Witness statement of Ian Silk, 30 July 2018, 9 [3.15].

[17] Exhibit 5.89, Witness statement of Ian Silk, 31 July 2018, 267 [19.3], noting that the divestment was made by an instruction to the relevant investment manager, IFM, on 12 July 2018 and was completed on 20 July 2018.

[18] Exhibit 5.90, Witness statement of Paul Schroder, 1 August 2018, 2 [7.1].

[19] Transcript, Ian Silk, 9 August 2018, 4541.

[20] Transcript, Ian Silk, 9 August 2018, 45356.

[21] Exhibit 5.90, Witness statement of Paul Schroder, 1 August 2018, 3 [7.6].

[22] Transcript, Ian Silk, 9 August 2018, 4534.

[23] Transcript, Ian Silk, 9 August 2018, 4529.

[24] Transcript, Ian Silk, 9 August 2018, 4528.

[25] Transcript, Ian Silk, 9 August 2018, 4528.

[26] Transcript, Ian Silk, 9 August 2018, 4535.

[27] Transcript, Ian Silk, 9 August 2018, 4535.

[28] Transcript, Ian Silk, 9 August 2018, 4535.

[29] Transcript, Ian Silk, 9 August 2018, 4535; Exhibit 5.90, Witness statement of Paul Schroder, 9 [9.3].

[30] Exhibit 5.90, Witness statement of Paul Schroder, 1 August 2018, 9 [9.3].

[31] Exhibit 5.90, Witness statement of Paul Schroder, 1 August 2018, 9 [9.3].

[32] Transcript, Ian Silk, 9 August 2018, 4535.

[33] Transcript, Ian Silk, 9 August 2018, 4535.

[34] Transcript, Ian Silk, 9 August 2018, 4541.

[35] Transcript, Ian Silk, 9 August 2018, 4542.

[36] Transcript, Ian Silk, 9 August 2018, 4543. Mr Silk referred to surveys and reports that demonstrated that small and medium business enterprises in particular were vulnerable to approaches from their business bank to transfer default superannuation to a fund associated with the bank: Transcript, Ian Silk, 9 August 2018, 45489; Exhibit 5.351, February 2015, Bank Cross-selling to Employers: A Threat to Australia’s Super Safety Net, Briefing Notice; Exhibit 5.352, September 2016, Default Funds and the Banks; Exhibit 5.353, February 2015, SME Employer Attitudes to Superannuation.

[37] Transcript, Ian Silk, 9 August 2018, 4544.

[38] Transcript, Ian Silk, 9 August 2018, 4544.

[39] Transcript, Ian Silk, 9 August 2018, 4544.

[40] Exhibit 5.94, 3 January 2017, AustralianSuper CEO Report.

[41] Transcript, Ian Silk, 9 August 2018, 4548.

[42] Transcript, Ian Silk, 9 August 2018, 454950.

[43] Transcript, Ian Silk, 9 August 2018, 4549, 4551; Exhibit 5.95, 17 July 2017, Email from Silk to APRA.

[44] Transcript, Ian Silk, 9 August 2018, 4554.

[45] Transcript, Ian Silk, 9 August 2018, 4554.

[46] Exhibit 5.340, Witness statement of Robbie Campo, 3 August 2018, 8–9 [21].

[47] Exhibit 5.368, 20 May 2015, Cbus-United Super Pty Ltd, Audit & Risk Management Committee Agenda, 178.

[48] Exhibit 5.368, 20 May 2015, Cbus-United Super Pty Ltd, Audit & Risk Management Committee Agenda, 173.

[49] Exhibit 5.369, 16 June 2016, United Super Pty Ltd, ATFT Construction and Building Industry Superannuation Fund, Member and Employer Services Committee Agenda.

[50] Exhibit 5.347, Undated Spreadsheet, Agreement Master List FY19.

[51] Exhibit 5.328, Witness statement of Peter Haysey, 3 August 2018, 7 [19].

[52] Transcript, Peter Haysey, 15 August 2018, 5014.

[53] Transcript, Peter Haysey, 15 August 2018, 5016.

[54] Transcript, Peter Haysey, 15 August 2018, 5014.

[55] Transcript, Peter Haysey, 15 August 2018, 501415.

[56] Transcript, Peter Haysey, 15 August 2018, 4997.

[57] Transcript, Peter Haysey, 15 August 2018, 5015.

[58] Transcript, Peter Haysey, 15 August 2018, 5015.

[59] Exhibit 5.238, Witness statement of Peter Haysey, 3 August 2018, Exhibit PJH-57 [CSF.0010.0001.0944].

[60] Transcript, Peter Haysey, 15 August 2018, 5016.

[61] Transcript, Peter Haysey, 15 August 2018, 5019.

[62] Exhibit 5.238, Witness statement of Peter Haysey, 3 August 2018, 22 [122].

[63] Transcript, Peter Haysey, 15 August 2018, 5020.

[64] Transcript, Peter Haysey, 15 August 2018, 5017.

[65] Transcript, Peter Haysey, 15 August 2018, 5020; Exhibit 5.238, Witness statement of Peter Haysey, 3 August 2018, Exhibit PJH-62 [CSF.0010.0001.0593].

[66] Exhibit 5.238, Witness statement of Peter Haysey, 3 August 2018, Exhibit PJH-61 [CSF.0010.0001.0839].

[67] Transcript, Peter Haysey, 15 August 2018, 5021.

[68] Transcript, Peter Haysey, 15 August 2018, 5021.

[69] Transcript, Peter Haysey, 15 August 2018, 5021.

[70] Transcript, Peter Haysey, 15 August 2018, 5020.

[71] Transcript, Peter Haysey, 15 August 2018, 5022.

[72] Transcript, Peter Haysey, 15 August 2018, 5022; Exhibit 5.247, 14 August 2018, Credit Card Expenditures, Clancy.

[73] Transcript, Peter Haysey, 15 August 2018, 5021.

[74] CSF, Module 5 Case Study Submission, 2 [10].