Australia’s First Super suspends PE investments

The Melbourne-based fund will also conduct a review of its A$100m private equity programme following a labour practices scandal concerning some portfolio companies.

Australian superannuation fund First Super said it will no longer make any new investments in private equity due to concerns about poor labour practices at portfolio companies of some of its private equity funds.

These companies include restaurant company Urban Purveyor Group, which was was sold in 2015 to Quadrant Private Equity and renamed Rockpool Dining Group; school care provider OSH Club; and Australia’s largest aviation services company Archer Capital-owned Aerocare, the company at the centre of the Sydney Airport ground staff wages and conditions scandal.

In line with this move, First Super will also review its $100 million private equity programme, which is mainly invested in domestic unlisted companies, the fund said in a statement.

Depending on the findings of the review, First Super may completely wind up its private equity portfolio, First Super CEO Bill Watson said. Consequently, the fund would increase investments in other asset classes such as unlisted infrastructure, unlisted property or more investment in listed companies.

Watson said in a statement: “We are extremely concerned at exposure to investment risk through companies that have enterprise agreements in place which have lower wages and conditions than what is contained in the relevant modern award.”

“Businesses based on unsustainable labour costs or challengeable industrial arrangements pose a high risk of a permanent adverse movement in labour costs, potentially impacting on returns. First Super is not interested in investing in companies that operate in a ‘grey area’ when it comes to labour practices.”

First Super was founded when three industry super funds merged in July 2008: the Furniture Industry Retirement Superannuation Trust, the Pulp & Paper Workers’ Superannuation Fund, and the Timber Industry Super Scheme.

The fund manages A$2.4 billion ($1.8 billion; €1.7 billion) of member savings and has 25 percent allocation to alternatives, according to PEI data. First Super has made investments in several Australian private equity funds including those of Asia-Pacific-focused ROC Partners and London-based fund of funds manager Stafford Capital Partners, according to its 2015-16 financial report. The fund has also made commitments to international private equity including Wiltshire Pooled Superannuation Trust and IFM Global Equities Trust.

In February, First Super raised its concerns with equity fund managers and the Australian Council of Superannuation Investors over investment in companies operating under a franchise model, after wage scandals at 7 Eleven and Dominos’ Pizza.

In March, employees of Aerocare claimed long working hours and paltry pay. The company has denied allegations of poor treatment and has since conducted a review together with Sydney Airport management.