SYDNEY (CU)_Members of the Federal Government of Australia are more and more anxious about increasing share market ownership concentration, which they believe would expand the influence of union-backed industry superannuation funds in not only voting at shareholder meetings or picking company directors, but also in potentially prosecuting political agendas. They are of the view that the shifting of ownership from small investors to funds could wield political, social and anti-competitive power.
“We don’t want a stock exchange where a handful of ‘mega funds’ make all the decisions, and ordinary investors are locked out and higher costs are paid by Australians,” chairman of the House of Representatives economics committee, Liberal MP Tim Wilson, said. “Common ownership’s flow-on risks higher prices and collusion, corporates imposing public policy agendas while bypassing democracy, and disempowering ordinary investors.”
Therefore, a parliamentary inquiry has been launched into the concentration if share market ownership by the superannuation sector and index funds by major American investment managers BlackRock and Vanguard. According to the terms of reference, the inquiry will focus on determining the extent of common ownership of public listed companies and its impact on competition, investment decisions, market behaviour and consumer harm. Passive index funds run by the two investment giants, along with State Street typically own 10 to 15 per cent of Australia’s listed stocks.
Despite concerns among political leaders and policymakers, some experts are of the view that the alleged problem of ownership concentration is a “beat-up”.
“The anti-competitive conspiracy has no evidence… Passive index funds don’t have consistent views and they are not colluding together,” Dean Paatsch, corporate governance adviser Ownership Matters, said. “You don’t see industry funds proposing resolutions advocating for a labour cause or environmental divestment.”
However, head of the Australian Competition and Consumer Commission Rod Sims disagreed, noting that this is the right time to examine ownership concentration of companies that were competitors.
“If a small number of institutions, such as three or four funds, had the bulk of ownership in some companies there is the potential to not actively compete for market share and focus on maximising profits,” he said. “There may or may not be things that we and ASIC can take to court, but there are issues we need to be aware of.”
