First Super clamps down on governance

The Australian LP is questioning its fund managers about issues relating to corporate governance as investors become increasingly diligent about their investments.

Australian pension funds are increasingly scrutinising fund managers about their private and public equity investments with regard to corporate governance, Michael O’Connor, investment committee chair at First Super, told Private Equity International. 

His comments come as the LP is contacting a number of its fund managers, including Blackrock Asset Management and Capital International, about their voting positions at the upcoming JPMorgan AGM. First Super and a “chorus of pension funds” in Australia are highly concerned about the roles of chief executive and chairman, which are not split at the bank, O'Connor said. 

Although the issue stemmed from the listed equity side, O'Connor said First Super will be looking across its portfolio at all asset classes, including private equity, to ascertain whether firms are operating within acceptable governance standards. He notes that firms in both private equity and public equity are at fault when it comes to governance issues. 

“We are a superannuation fund in Australia and believe our fund managers should be supporting improvements in corporate governance. Not to do so illustrates to us that they are not being as diligent as they should be in protecting our members’ money,” O’Connor said in an interview with PEI

“We will be slowly going through each of our investments and making sure that the investments we have meet the governance standards that we think are necessary to protect our members’ investments,” he said. “We are certainly very serious about making sure that our money is managed by people who have a similar commitment to us when it comes to corporate governance.”

Bill Watson, chief executive of First Super, added that although private equity firms are often more transparent than listed equity managers due to pressure of LPs and the nature of having fewer investments, GPs will still be examined by the fund for their corporate governance. 

“[We] will interview private equity managers and the [key] issue for us is, when [we] are looking at direct investing through private equity managers, what are the managers' attitudes toward the issues that are of concern to the board?”

For example, a manager proposing an investment in a US underground coal mine must pay great attention to its safety performance and safety record because they have a material impact on the profitability and also legislative risk. “It is drilling into those details [that is important] rather than the managers saying that we have to take [their word for it],” Watson said. 

There is no doubt that from our point of view, a number of pension funds and Australian superannuation funds, certainly our fund, are going to be more active in prosecuting a case for increasing the governance standard of vehicles we invest in

Michael O'Connor, investment committee chair, First Super

Previously, First Super pulled out of an investment for reasons related to corporate governance principles. In January, the superannuation fund revealed plans to divest all holdings in scandal-ridden News Corporation after the Rupert Murdoch-owned business ignored calls for it to install more independent directors. 

The divestment-on-principle echoed that of some US pension funds that responded to the December 2012 shooting massacre at a Connecticut elementary school in the US. The California State Teachers’ Retirement System’s investment committee in January unanimously approved a motion to divest from manufacturers that produce firearms deemed illegal by the state of California, PEI reported earlier.

O’Connor said, “There is no doubt that from our point of view, a number of pension funds and Australian superannuation funds, certainly our fund, are going to be more active in prosecuting a case for increasing the governance standards of vehicles we invest in.”

First Super is an Australian superannuation fund with A$1.7 billion (€1.3 billion; $1.7 billion) in assets under management. As of March 2013, the fund had a 5.4 percent allocation to Australian private equity and a 0.7 percent allocation to international private equity, according to First Super data. 

The fund has made private equity commitments of as much as A$586 million to firms including Industry Funds Management, Quay Partners and Macquarie Capital, according to PEI's Research & Analytics division.