Super Lent to Hedge Funds


ComSuper, the fund involved, has 325,000 members, including 155,500 Federal public servants and 51,500 uniformed members of Australia’s army, navy and airforce. Evidence given at a Senate Estimates Committee hearing this week strongly suggests that the practice goes well beyond Commonwealth superannuation funds – private super could well be affected too.

Peter Carrigy-Ryan, an investment manager for a Government agency known as the Australian Reward Investment Alliance (ARIA), which provides investment services to ComSuper, was quizzed during the hearing by Tasmanian Liberal Senator John Watson, an acknowledged expert on superannuation. Carrigy-Ryan defended himself by saying that the practice of lending superannuation assets, like blue chip shares, is widespread in both the public and private sectors: "I think you would find that most custodians in the Australian market would lend their scrip for a whole range of reasons," he said.

Australians with superannuation might find this comment disturbing.

Senator Watson asked what proportion of the assets that ARIA manages was in hedge funds. Carrigy-Ryan said he would have to check that and get a current figure, but added that "It would be of the order of 4 to 6 per cent."

ARIA’s annual report says it had $18 billion under management – for more than 325,500 members – at June 30 last year.

The Superannuation and Corporate Governance Minister, Nick Sherry, who was at the committee meeting, told Senator Watson that the Government would take his question on notice.

Senator Watson is still waiting for the detailed figures.

The respected financial publisher, Forbes, defines hedge funds as "aggressively managed portfolios of investments that use advanced investment strategies". It says these strategies include seeking leverage and taking long, short and derivative positions in both domestic and international markets, with the goal of generating high returns.

Modern hedge funds are very big players in the world of domestic and international finance. Their risk profile, particularly for long term and conservative operators like superannuation funds, is questionable. Ethical questions also arise when superannuation contributors’ assets are used in this way without full disclosure.

At the hearing, Senator Watson asked Carrigy-Ryan if ARIA had any exposure to derivatives.

"Directly, none," the fund manager replied.

"Indirectly?" the persistent Senator asked.

"Again, our hedge funds may have some derivative exposure," Carrigy-Ryan replied.

"You have not sought any leverage through derivatives?" Senator Watson asked.

"No, our funds are not leveraged," Carrigy-Ryan replied. He said the regulations under which ARIA operates would not permit that.

Senator Watson noted that hedge funds have been hit hard by recent roller coaster rides on world stock markets. "Given the volatility that this trade has given to the stock market, are you happy, or is the Government happy, that scrip is being lent by ComSuper custodians, even for the purpose of short selling?" he asked.

Senator Sherry answered that he did not "intend to make any comment, as Minister, about those types of market issues here today."

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.