Australia's First Super halts PE investments

The industry superannuation fund said it would make no new commitments to the asset class and place its existing program on review. The review could result in the program being wound up and increased allocations to listed equities or unlisted infrastructure and property. It singled out three companies as high risk: Urban Purveyor Group, OSHClub, and AeroCare.

Aerocare, which has been owned by Archer Capital since 2014, provides services such as baggage handling at 35 airports in Australia and New Zealand, employing more than 2,500 people. It recently faced allegations – denied by the company – that staff were forced to sleep on makeshift beds beside baggage carousels in between shifts.

OSHClub is an Advent Partners portfolio company that offers after school care and holiday programs to more than 400 schools nationwide, while Urban Purveyor Group is a restaurant chain operator owned by Quadrant Private Equity. Earlier this year, following a wage scandal at 7 Eleven, First Super told all its managers that it was uncomfortable with investments in companies operating under a franchise model.

“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," First Super CEO Bill Watson said in a statement announcing the suspension of new PE investments, adding that the superannuation fund had no interest in investing in companies that operate in a “gray area” when it comes to labor practices.

Watson noted that businesses based on unsustainable labor costs or questionable industrial arrangements pose a high risk of permanent adverse movement in labor costs, which could harm returns. Furthermore, employees denied a living wage are in danger of suffering workplace injuries due to fatigue through excessive hours or high turnover.

First Super had total investments of A$2.42 billion ($1.8 billion) as of June 2016, including A$183.9 million in Australian private equity and A$10.3 million in international private equity. Most of its exposure is through fund-of-funds managed by the likes of IFM Investors and ROC Partners. Watson described the private equity program as being worth A$100 million.

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• Topics
• Australasia
• LPs
• Regulation
• Australia
• First Super