That has meant the investment options available to individual investors is declining while more of the wealth being created by businesses is occurring under private ownership.
In Australia, cashed-up buyout funds that are teaming up with industry funds may accelerate the trend.
AustralianSuper, which is the nation’s largest super fund with $145 billion of assets, joined forces last year with BGH Capital to bid for Healthscope and Navitas.
Nothing stopping shareholders
However, the Healthscope bid was highly controversial as it signalled a further increase in the influence of industry funds but also raised conflict of interest concerns.
This was because AustralianSuper, which is a large shareholder, said it would favour its own bid over rival takeover offers that may have been offered on better terms.
The Healthscope board has unanimously supported a rival $4.5 billion bid by listed Canadian group Brookfield.
AustralianSuper chairman Heather Ridout described the Healthscope bid as an “experiment”.
“Just because we have to deal with prickly issues such as properly managing conflicts of interest doesn’t mean that we shouldn’t do these things,” she said at the Australian Institute of Company Directors gathering.
“They can be done properly. We have a very strict governance around those issues.”
Mr Gonski, who has served on several listed company boards, says there was nothing stopping shareholders from teaming up with other players to take companies private, even if it creates real or perceived conflicts.
“Every shareholder, in my opinion, is entitled to do as they wish, in terms of joining with everybody, as long as it is legal and as long as it is not in breach of what they [have previously] said.
“If I as a shareholder represented to me or a company that they are going to be there forever, and then I sell out immediately, that is a breach of faith and that is wrong.”
Acting in members’ interests
But he said if shareholders had remained “silent” on their intentions, they should not be faulted for pursuing their interests.
Listed company boards, he said, had to prepare for increased private equity activity.
“Shareholders are entitled to do as they will and we, as a board have to be aware that can happen.”
Ms Ridout said that about 3 per cent of Australian Super’s assets are invested in private equity.
But she said that percentage would grow to more than 10 per cent.
“We are also quite deliberate about this,” he said.
“We take our opportunities whether it’s direct investing ourselves, co-investing or joining with BGH.”
She said AustralianSuper already had an investment in Healthscope that it wanted to increase. But she said the investment committee went to “huge lengths to avoid conflicts of interest”, in pursuing the deal. She said the fund acted in the interests of its members at all times.
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