The boss of Australia’s biggest super fund, AustralianSuper, was worried an underperforming investment in a renewable energy company would be viewed as “ideological” by the public, the royal commission has heard.
AustralianSuper’s head of mid-risk portfolios Jason Peasley appeared before the banking royal commission on Wednesday afternoon to answer questions about the fund’s investment in Pacific Hydro.
Pacific Hydro is an Australian renewable energy company with wind and hydro-electric energy assets in Australia, Chile and Brazil.
In 2005, AustralianSuper was part of a multi-billion-dollar takeover of the company through IFM Investors, an infrastructure and property fund manager that is joint-owned by a number of industry super funds, including AustralianSuper.
The expectation was that this investment would yield double-digit annual returns. But a number of factors conspired to radically devalue the company.
These factors included the Abbott government’s negative stance on renewable energy, which reduced the value of renewable energy certificates; a massive decline in projections in energy use in Australia, and a severe drought in Chile.
By 2014, the commission heard the value of the company was written down by $307 million, or 18 per cent – a decline Mr Peasely described as “significant” and “of great concern” to AustralianSuper.
However, Pacific Hydro was eventually sold at a premium in 2016 reportedly for upwards of $3 billion. Over the lifetime of the asset, the asset made an annual return of 7.2 per cent.
The focus of counsel assisting Albert Dinelli’s cross-examination was on how AustralianSuper exerted its influence on IFM Investors.
Mr Dinelli paid particular attention to AustralianSuper’s interventions in a 2014 review of the investment by IFM Investors.
Mr Peasley described the intervention as follows: “As obviously a large investor and a concerned investor, we engaged with the manager.
“We sought to outline the specific areas that we felt the strategic review should look to undertake,” he said, saying these concerns were formally expressed in a letter.
Mr Dinelli asked whether it was common for AustralianSuper to send such letters to fund managers.
“It’s not at all common. But this was not at all a common circumstance,” Mr Peasley replied.
Mr Dinelli also quoted a document written by AustralianSuper chief executive Ian Silk around the same time, in which Mr Silk expressed concern about the “negative publicity” of the writedown of Pacific Hydro.
“The Pacific Hydro case has been cited as an example of ideological investment that has occurred to the detriment of industry fund members,” Mr Silk was quoted as saying.
When asked to comment on whether there was any truth in the impression that the investment was ideologically driven, Mr Peasley said he did not believe it was.
“It would be difficult for me to comment on the decisions made by a third party in 1995 and 2005,” he said.
“I would observe by my engagement with IFM since 2011 and, indeed, prior, by being an industry participant that they are particularly hard-nosed people with respect to making infrastructure investments and managing those investments. I don’t get the impression at all that they make investments for ideological reasons.”
AustralianSuper is expected to front the royal commission again tomorrow, with Mr Silk facing questioning.
Topics will included AustralianSuper’s marketing and advertising spend. Included in this will be its ownership of The New Daily.
The New Daily is owned by Industry Super Holdings, which is owned by a collection of industry funds including AustralianSuper. Industry Super Holdings also owns IFM Investors.