economics
22 Feb 2008
Super Lent to Hedge Funds
Blue chip stocks, possibly worth more than $1 billion and bought with the superannuation money of Federal public servants, have been 'lent' to now risky hedge funds, reports Alan Thornhill
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."
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When ordinary Australians - the ones whose sweat and blood are represented in those scrip holdings - learn what naked shorting actually is, how it works and which authorities turn a blind eye to this fraudulent and thieving practice, I do believe the people will take to the streets armed with pitchforks but, until then, ordinary Australians will simply have to suffer their ignorance at the mercy of these crooks.
Bullion, Gold and Silver, the only way ordinary working people were ever or are ever going to be able to protect their hard earned value from Gucci terrorists in air-conditioned corporate offices or fat cat pollies on the take in Canberra.
Get your pitchforks ready, we may need them soon.
Busy sharpening mine rockjaw.
Many years ago walked away from a degree in business finance when i realized it was a house of cards built on a foundation of sham.
The infamous unfunded commonwealth liability (all those ordinary people relying on their lifelong indexed comsuper pensions) is going to bite hard one day.
Too much of the stock market is gambling not investment. Hedge funds just use a superior form of legerdemain while sitting at the card table.
I sometimes wonder what could be achieved if some of the brightest minds in the country weren’t sucked into the paper shuffling world of the various financial institutions to make a decent quid and instead put their mind to creating something new and valuable for society.
First off what a cynical exercise to name this fund a "Future" fund when this sort of short sighted unsustainable investment behaviour is persued. Let another legacy of the economic irrationalism that the previous government persued that I can but only pray is effectively addressed in this current administration.
Before the last election I attempted to check out the legislation regarding the investment of OUR super and found this extremely lacking in an important aspect of "due dilligence" and no, I am not meaning fiduciary or governance complaince predicated on some fantasy of fiscal activity. But guidelines based on concepts of environmental and social sustainability.
I believe that the legislation as it currently stands is negligent in its standards and objectives, IF, we truly want a Futures fund and not more cowboy short term activity that only really profits the hedgers and their spruikers that drum these investments up over games of golf and other such junkets, we should be posing some very specifice questions to the House of Representatives and Senate.
I invite those interested to compare the New Zealand legislation to the Australian and see what just isn’t mentioned. Lets see what a commitment to risk guidelines that are about a sustainable future could mean. The Future Fund CEO, Paul Costello, might know about a version of this from his previous role in the NZ fund. Not saying that the NZ scenario is better or worse, but at least there is some sort or lip service to the concept of stewarding this fund to begin addressing sustainable guidelines. Here’s an idea what about environmentally and socially POSITIVE funds??? Not just window dressing but longterm strategies and the gumption to really investigate and use muscle to obtain real change. Remember the inability of the the federal government via its Future Fund and Higher Education Fund stakehold in Telstra to in any way impact on the obscene personal profiteering of the Telstra board is but one tiny example.
Here endeth my probably a bit sketchy spit!!
C’mon, folks, all you need is enough faith and she’ll be right! Haven’t we heard that somewhere before, from men in frocks?
What about the exposure to the value of the fund’s own share porfolio by "lending" to those who would sell short.??
It is illegal for individuals to sell something they do not have.
Every Super Fund is exposed by these Bastards. When approached they should buy, buy, buy and put the hedge funds out of business.