The Port of Newcastle has serious concerns about the appointment of Macquarie as TIF’s manager. (1233 ABC Newcastle: Robert Virtue)
It is the strangest of strange bedfellows — a CFMEU-backed super fund working in cahoots with the Catholics’ super scheme to lobby for Macquarie, the bank known as “the millionaire factory”.
At stake: control of a multi-billion-dollar investment fund with interests in some major assets — six airports in Queensland, the Port of Newcastle, the Royal Adelaide Hospital and Sydney’s desalination plant among them.
Woe betide those who stand in the way of Macquarie and those backing it, led by the Queensland building unions’ super scheme, BUSSQ.
It is a tale involving allegations of undue pressure being placed on directors, a tender process being subverted, conflicts of interest ignored, and kickbacks being offered in exchange for support.
“This is royal commission stuff,” one insider said.
Already, the chairman of the trustee board that oversees the investment fund in question and a series of other directors have been sacked — or left with no choice but to resign — after refusing to acquiesce to demands that Macquarie be appointed, despite concerns that its appointment would raise serious conflicts of interest.
At the heart of the story is The Infrastructure Fund, or TIF, set up in 1998 by a group of super funds — most of them not-for-profit industry funds — to ride the privatisation wave and invest in the kind of infrastructure once owned by government — airports, ports, hospitals, land titles’ registries, you name it.
TIF has amassed a portfolio valued in the billions.
But it was not happy with the fees or performance of the company appointed to manage and grow its assets — the Westpac-owned Hastings Fund Management.
Last August, after a strategic review, Hastings was sacked and TIF began working on a new operating model.
Initially, the plan was to bring the management of all assets in-house — a strategy increasingly being adopted by investment funds to save money.
On April 10, the trustee board signed off on a hybrid model — some asset management to be internalised and some management of assets to be outsourced.
Two bidders were shortlisted for the outsourced work — Stepstone, a big global asset manager, and Macquarie Infrastructure and Real Assets, or MIRA, as its generally known.
The two candidates were due to make their pitches at Brisbane’s Spring Hill on April 30 — a Monday.
But things changed rapidly in the days beforehand.
The Macquarie push
Bob Lette was the long-term chairman of Gardior, the trustee board for TIF. He was appointed by BUSSQ, where he had also served as a director for 33 years.
In the lead-up to the meeting, Mr Lette was effectively instructed by BUSSQ to support the installation of Macquarie as TIF’s asset manager.
Mr Lette responded by letter on Friday, April 27, telling BUSSQ that as a director he had a duty to act for all unit holders.
He asked BUSSQ to explain why it believed Macquarie was the best suited external manager “as it may be useful to me in making my decision in the best interests of all unitholders”, and pointed out potential conflicts of interest if Macquarie was appointed.
The response to Mr Lette’s resistance was swift and brutal: by day’s end, BUSSQ had removed him from the trustee board.
On May 14, Ian Gillings, Catholic Super’s appointee to the trustee board, and Nick Basile, Suncorp’s appointee, also left the board rather than accede to demands that they back the swift installation of Macquarie.
That same day, the super funds that own the trustee company sent separate letters to the new chairman, all fashioned from the same template.
“[We] do not support the proposed future operating model of having underlying investment managers and an internal team as we believe this creates unnecessary costs and complexity,” each told the new chairman in similarly worded letters and emails dated May 14.
“We need a single investment manager.
“Given our knowledge and experience of the market we are very comfortable that MIRA, Macquarie’s infrastructure funds management division, is best placed to deliver these requirements.”
BUSSQ and Sunsuper took the pitch on behalf of Macquarie a step further — effectively urging that it be handed control of the entire operation, including the overseeing trustee board.
“We want to significantly simplify the future operating model down to a basic trustee/responsible entity operated largely by the new manager,” each wrote.
“In addition, we would be comfortable with a couple of independent expert directors plus an advisory board.
“We do not want in the future operating model: our own fund-raising team; our own asset management team; multiple underlying investment managers; a secretariat separate from the manager; a large unit holder representative board.”
The push succeeded in turning the endorsed board strategy on its head.
David O’Sullivan, the chief investment officer and former long-standing CEO of BUSSQ, was the author of one of those letters, which was addressed to all directors of the trustee board.
David O’Sullivan is the chief investment officer and former CEO of BUSSQ. (LinkedIn: David O’Sullivan)
Some directors and unitholders the ABC has spoken to were unaware at the time that Mr O’Sullivan had an existing relationship with Macquarie.
He is on an advisory board for Macquarie Pastoral Fund, which sits within the stable of MIRA — the Macquarie fund pitching for the management of TIF.
Mr O’Sullivan is adamant that this did not influence his support for MIRA, which he assessed as offering a good deal for long-term investors in TIF.
“I am on the advisory board for several funds we invest in,” he said.
“They are all unpaid roles, they can be time-consuming but they are all aimed at protecting the interests of unitholders. All these were disclosed to Gardior.
“In the MIRA proposal to Gardior they offered a number of fee models including one with lower fees for all long-term investors, over five years.”
Jon Addison, who replaced Bob Lette as chairman of the trustee board overseeing TIF, confirms that the potential conflict of interest was disclosed.
But this was not until Mr O’Sullivan joined the trustee board on May 16 — well after BUSSQ began lobbying to have Macquarie appointed.
Conflict of interest
“David O’Sullivan disclosed that he was a member of an advisory board at the 16 May 2018 board meeting, at which he was approved as a director of the Gardior Board,” Mr Addison told the ABC in a written statement.
“The board considered the perceived conflict in line with the Conflict of Interest Policy and confirmed they had no concerns. This occurred prior to David actively participating in any relevant board business.”
Perhaps it was a verbal disclosure at that meeting — the ABC has obtained a declaration signed by Mr O’Sullivan that was presented to the May 16 board meeting.
Under a section “Conflicts of interest”, he wrote: “Nil.”
Port of Newcastle
Port of Newcastle is the jewel in the crown for TIF.
Its 50 per cent stake in the country’s biggest coal port, which has ambitions to develop a container terminal, makes up about a quarter of the value of all TIF’s assets.
Yet, the Port of Newcastle has serious concerns about the appointment of Macquarie as TIF’s manager.
One reason is a conflict of interest Macquarie faces.
MIRA, the Macquarie fund that looks likely to gain effective control of TIF, has a 49-per cent stake in Grail, a coal hauling company established by the resources company Glencore, Port of Newcastle’s largest customer, which overwhelmingly carries Glencore coal.
Port of Newcastle is currently involved in a major dispute over port access fees with Glencore.
The port’s chairman, Roy Green, has made it clear he strenuously objects to Macquarie’s appointment.
He first wrote expressing serious misgivings to Gardior on March 22 and, on April 26, followed up with a 10-page letting detailing an extensive list of problems that could arise if Macquarie was installed.
“If Macquarie Bank is appointed to manage PON (Port of Newcastle), there is a question of whether it will be able to manage the direct conflict of interest in the conduct of the access dispute,” Dr Green wrote.
“Further, at the very least, it will raise questions about Macquarie’s and Glencore’s market power due to the extent of integration between the port, rail haulage and coal production.”
Numerous potential conflicts of interest arising from the appointment of Macquarie were identified in a report prepared for the Gardior board by the investment bank, RBC.
But curiously, the current board appears to have instead put faith in the findings of another consultancy, JANA, which saw no conflicts of interest for Macquarie and recommended its appointment.
“Gardior deliberately engaged an independent advisor — JANA — to supervise the asset manager selection process so that there could be no question that strong governance and due diligence procedures were followed and an unwavering focus on investor outcomes was being considered,” Jon Addison wrote in response to questions from the ABC.
Mr Addison did not mention he is in possession of legal advice, issued on April 29, which finds clear conflicts of interests, serious deficiencies in Macquarie’s proposals to manage them, and says JANA did not have proper regard to the risks they pose.
The former board strategy of having some internal asset management and possibly more than one external manager was in part a way of dealing with such conflicts of interest, people involved have told the ABC.
Some are puzzled and others suspicious about why the super funds that control TIF overturned that approach.
Mr Addison said: “If we were to be made aware of any allegation of preferential treatment, and we have not, we would investigate immediately.
“I can assure all unitholders that the Gardior board acts in their best interests at all times and does not engage in activities that would provide preferential treatment to select unitholders.
“No decision has been made about the appointment of a new TIF asset manager as we have not yet completed our process.”
Mr O’Sullivan said: “BUSSQ has been offered no special deals and nor have we sought them.”
The five super funds that control the trustee board own 65 per cent of The Infrastructure Fund; the remaining 35 per cent is held by a grab bag of small investors.
Those investors will hope they can rely on the chairman’s assurances.
As it stands, some are deeply troubled by events taking place, and fearful that their interests will not be served.