Failed industry fund merger laid bare at Royal Commission

Energy Super backed down on its plan to merge with the now $14 billion Equipsuper, who wanted no union-nominated board seats for the merged fund, even though the merger would have delivered significant financial benefit to Energy Super's members, the Royal Commission heard.

A KPMG report commissioned by Energy Super's management showed that merging with Equipsuper, the smaller fund could save $20 million or 15 basis points for its members.

The two fund's boards were in talks about the board's composition following the merger.

Equip chair Andrew Fairley said a potential killer or deal breaker would be any union-nominated positions on the merged fund's board, according to Energy Super chair Scott Wilson who was in the witness box this afternoon.

"We worked for years to get rid of them all, we are not going to reopen the practice," Fairley allegedly told former Energy Super director Mark Williamson, Wilson said.

Energy Super wanted a board that was 50% of its directors and 50% of Equip directors, Wilson said.

"The reason why Mark and I are trying to pull it up is because my feelings were from the very start that this won't get over, this will not proceed because you've got the chair of the other fund saying we will not accept union-nominated directors on the fund," Wilson said.

Just as Fairley was opposing union-backed seats, two of Energy Super's directors, one of whom was union-nominated, were getting told by other Equip directors that they would back the merger.

"So we were getting mixed intel," Wilson said.

Around the same time, the Energy Trades Union (ETU) sent a request to Energy Super's board requesting it and the Queensland Services Union (QSU) be named in the proposed constitution to secure tenure past the first term of appointment.

Answering if the fund had become conflicted between union interests and member interests, Wilson replied in negative.

"The interest of unions and interests of members of funds are so aligned as to be indistinguishable, it's what we do," Wilson said.

Earlier in questioning, counsel assisting Albert Dinelli laid bare how Energy Super's board was chosen under the equal-representation model used by industry funds.

Half the members were industry-nominated, there was only one independent director, and skills assessment metrics were ignored.

The board that governs $7 billion of investments for members does not currently have a board director with investment expertise, with Wilson suggesting the board likes to "upskill" board directors with education.

"You need someone with a passion for members of the fund. I don't know how you capture that in a skills matrix. It is a gut feeling," he said.

Read more: Energy SuperEquipsuperRoyal CommissionScott WilsonAndrew FairleyMark WilliamsonAlbert DinelliEnergy Trades UnionKPMGQueensland Services Union
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