Ports sale spotlights super conflict

It comes at a time when the European crisis has smashed global equity markets, crunching the value of the $1.3 trillion retirement savings pool. It also comes as pressure mounts on the industry to be more transparent about its investments.

Flinders Ports, owned by a consortium of super funds and European fund Galaxy SARL, is about to have an ownership change after Galaxy put its 35.7 per cent stake in the ports group for sale. Its other shareholders, MTAA Super, Equipsuper and DIT Investments have a pre-emptive right over the stake.

During the sale process, State Super New South Wales and Telstra Super are understood to have been interested in bidding. Telstra Super is understood to have had its bid accepted and will win the prize for an estimated $180 million if the existing shareholders don't take up their pre-emptive rights. (The enterprise value of the ports business is $850 million.)

The complication is MTAA Super, which owns 35.7 per cent of Flinders Ports, MTAA's asset consultant Access Capital, and the NSW government-owned trustee State Super NSW, which is also a client of Access Capital.

Given MTAA's recent controversies, including investigation by the Australian Prudential Regulation Authority into its financial affairs, as well as a payroll tax investigation into the MTAA motoring trade organisation, it cannot afford to take up its pre-emptive rights and buy the stake.

However, Access Capital is believed to have come up with a plan to have another client buy the stake by proposing that MTAA issues shares in a special purpose vehicle that holds the super fund's 35.7 per cent stake in Flinders Ports. These shares would then be on-sold to State Super NSW, effectively giving it a back-door way to buy the stake. That way MTAA and State Super would own 71.4 per cent of the ports business through this special purpose vehicle. MTAA declined to comment and Access Capital said: "We cannot and do not comment on our clients or any investments which may or may not be under consideration or made by our clients."

If the speculation is right, the fate of the deal will boil down to the trustees of MTAA Super, not Access Capital.

It is a decision that will be all the more interesting given the MTAA has recently had an overhaul of senior management and board as it tries to repair its damaged image and poor performance. Last week four directors retired.

In another big event, MTAA chief executive Michael Delaney stepped down after 22 years, with his deputy Leeanne Turner taking the top job.

At first blush is hard to work out what MTAA members would get out of such a complex deal, other than having its super fund acting as an agent for another player. The move would dilute its control of the special purpose vehicle and could result in the loss of one of its two board seats. State Super would benefit from getting back-door access to the asset and Access Capital would get a fee from State Super.

The speculated proposal is all the more interesting given the speculation a few months ago that MTAA was looking to sell its stake in Flinders Ports as part of a strategy to improve its liquidity. MTAA has a stated strategic asset allocation to target return portfolio of 40 per cent. According to the MTAA website, on November 22 this allocation was 48.2 per cent, on a stated $6 billion fund, which suggests it still has almost $500 million of illiquid assets to sell.

At June 30, its target return portfolio was 47.6 per cent. The slight increase is in spite of selling a 50 per cent stake in the Australia Post building in Bourke Street to Brookfield for $120 million, which enabled it to repay a secured loan for $69.1 million since June 30. It also sold a 50 per cent interest in south-east Queensland estates Flagstone Creek and Spring Mountain for $45 million and repaid a loan for $50 million.

It is believed APRA is concerned about this over allocation and is pressing the fund to get its asset allocation into line with its strategic allocation as declared in the product disclosure statement to members.

Asset consultants have avoided scrutiny because they are few in number, the managers they rate are afraid of upsetting them, and they're the classic advisers who merely make suggestions with others making the decisions and taking on the risk.

But all this might be about to change. APRA has released a discussion paper on prudential standards for super that will tackle outsourcing and the need for trustees to develop a robust set of policies for trustees dealing with asset consultants, insurers and other outsourced services. It is a change that can't come soon enough.

aferguson@fairfaxmedia.com.au