If you are in a large superannuation fund, there is a better than average chance that the trustees are acting against your best interests. It may even be a breach of their duties as trustees.
The issue, as was (indirectly) brought to light by the Opes Prime fiasco, is the stock lending programs which these funds engage in.
There is every chance that your superannuation fund is lending the stock held by that fund on behalf of members, to other parties (primarily hedge funds). There is only one reason why the stock is borrowed and the fund trustees know this reason (have always known this reason) - it's so the borrower can sell the stock, thus forcing down the price.
The fees charged by the funds for this borrowing are miniscule - in the order of a fraction of a percent. Yet, they still do it. The result? IMO, they are blatantly acting against the interests of their members.
Since this disgraceful behaviour became public around a month ago, these large funds have spent their time defending the practice. Recently, they have even gone so far as to affirm their intention to continue doing it.
IMO, they are a disgrace to their offices. They are blatantly acting against their members' interests by engaging in a practice which breaches the most fundamental trustee's duty: to act in the best interests of their beneficiaries.
Let me give you two quotes from this article, which I believe makes my point:- http://www.theaustralian.news.com.au/story/0,25197,23589108-20501,00.html
The first is from Pauline Vamos, the head of ASFA (the large super fund peak body):-
"If we start dictating to trustees what they can and can't invest in, where does it stop?" she asked.
With all due respect, IMO Ms Vamos is extremely confused. The trustees have already made their investment decision, by buying the shares for their members in the first place. Lending them out to a hedge fund is not an investment decision. It is not even a hedging decision. It is a private wager with the hedge fund that the hedge fund will not succeed in using the super fund's members' shares to force the share price down low enough to harm those members. They know, full well, what the hedge funds will do with the borrowed stock. IMO, they are not investing, they're not hedging, but they're gambling. They can do that with their own money, but not their beneficiaries' money.
The second quote is a government spokesman:-
A spokesman for the Minister for Superannuation and Corporate Law, Nick Sherry, said that it was the right of the independent superannuation trustees to make decisions about the super funds they managed, including whether or not to lend stocks.
Sorry, I don't buy it. A trustee's first and foremost duty is to act in the best interests of their beneficiaries. It most certainly is not their own money they are putting at risk. In fact, hundreds of court cases going back to the 1600's state that a trustee must exercise uncommon prudence when managing funds on behalf of others.
This government spokesman seems to think the trustees are taking a punt with their own money. They are not. Alternatively, the government spokesman seems to think government has no place in determining the prudence, or otherwise, of a super fund trustee's investment decisions....Umm, I thought that was why the government established the Australian Prudential Regulation Authority (APRA). Is this spokesman implying that the government wants APRA to stay out of it?
These are the two things which most disturb me about this entire episode - not that the big fund trustees were caught out, but that after being caught out, the not only defended themselves, but defended their right to continue acting in a manner which I personally view as against their members' interests. And, to rub salt into the wounds, the government seems to think the large super fund trustees are having a punt with their own money, rather than their members' money, that what they are doing is not against the law at all and that they should be perfectly entitled to continue doing it, until the cows come home!
Well, all I can say is, it's a good thing the previous government passed the choice of super fund legislation before they were kicked out. I've exercised my choice. I just pity those poor people who don't have enough money or knowledge about these kinds of practices to exercise their own.
