The Australian Competition and Consumer Commission (ACCC) has not identified any complaints in relation to common ownership adversely affecting competition in the market.
In its submission on the capital concentration and common ownership in Australia enquiry ACCC chair, Rob Sims, said shifting to inhouse investment management and the consolidation of the superannuation industry already led to the concentration of capital.
“In the superannuation sector, this increase in concentration has been further caused by factors including:
- A shift in recent years for superannuation funds to manage more of their investments ‘inhouse’, as opposed to outsourcing that function to other investment managers. Typically, when superannuation funds outsource their investment management function, they engage a number of investment managers. This may result in the ownership and voting rights of securities being spread across a number of investment managers. In contrast, if a superannuation fund moves its investment management function in-house, the ownership and voting rights of securities becomes consolidated under a single entity (the superannuation fund); and
- Mergers between superannuation funds, with a key driver of these mergers being to ensure funds have sufficient scale to compete. These mergers have resulted in a decreasing number of superannuation funds holding a growing share of superannuation assets.”
It was noted that two recent studies found common ownership may have a detrimental effect on competition in certain concentrated sectors such as airlines or retail banking.
“These studies found that in some oligopolistic markets where competitors have shareholders in common, prices may be higher, management incentives may be oriented towards industry performance and not firm performance and collusion may be more likely,” Simms said.
“These findings are potentially concerning in the Australian context where many markets are dominated by a small number of providers, including banking, supermarkets, mobile telecommunications, internet service provision, energy retailing, gas supply and transport, insurance, pathology services and domestic air travel.”
However, Simms said, those studies had been the subject of critical comment by academics and investors and the conclusion by the ACCC was for no consensus on the impact of common ownership of capital.
“Other studies critique the mechanisms through which institutional investors may seek to influence the actions of competing companies in which they hold an ownership interest,” Simms said.
“Those studies emphasise the heterogeneity of institutional investor interests and the fiduciary duties of company directors to act in the best interests of their companies.
“Overall, there appears to be no consensus in the research on the effects of common ownership on competition.”
The scale of concentrated capital
The submission noted that domestic institutional investors were estimated to own just over half the value of listed Australian equities, while a third was owned by overseas-based institutional investors, and household investors only held 11%.
Simms said the growth of the Australian super system was an important factor behind this increased level of institutional ownership.
“To put that growth into perspective, the value of Australian listed equities owned by [Australian Prudential Regulation Authority] APRA-regulated superannuation funds grew by over 50% in real terms between September 2013 and March 2021,” Simms said.
“The value of Australian listed equities owned by those funds in March 2021 was $467 billion.
“The inflow of money into superannuation funds and the need for that money to be invested has contributed to the increased ownership of publicly listed companies by superannuation funds.”