Pragmatic, smart on costs and aware of his time coming to an end, Bob Henricks, the long serving chair of Energy Super talks to Investment Magazine.
Australian superannuation funds have a reputation as some of the world’s toughest fee negotiators which must make Bob Henricks one of steeliest negotiators anywhere.
He objects to the imposition of independents on the grounds of cost. He believes the expense of setting up internal fund management can be avoided by better deals with fund managers and he sees his $70,000 remuneration as making him one of the best value-for-money chairs in Australia.
Furthermore his opposition to the government’s intention to impose independents on superannuation boards is also approached from the view of an experienced negotiator.
Making noises about appointing extra independents will only weaken the position of funds, he believes.
“Placating them in this way will not sort the issue, it will not go away. If you have a biased view on something, it will only make you more determined.”
He is also disappointed at the subscriptions paid to industry associations which have not supported this line.
“There has been some sort of tacit acceptance of [independents] by the organisations that represent super funds,” he said. “I do not feel we have been adequately represented in this debate by the people who we pay to represent us.”
To chair the Energy Super board and its investment committee Henricks is paid $70,000 annually, a figure he says “is not too bad” considering the funds’ $5 billion size.
“I have not pushed at any stage for more money and I do not think the members begrudge that,” he adds, pointing out that an independent appointed to his position would cost much more.
The irony for him is that there is no hard evidence that the act of removing him or any of his board and replacing them with independent directors would add to performance. The only certainty is that it will cost funds more to have independents.
His mood has been darkened by speculative letters from those who see the government’s consultation on independents as a career opportunity.
“I have had a flurry of letters from people in the last few months who have said ‘I am a director of a small business, I know nothing about superannuation but I am sure I could learn, please give me a call. I would do it for a reasonable sum of money’. That to me is pitiful. You have either got the members at heart, or you have not, and you should not be on a super fund if you are not starting for the basis of looking after the members interests.”
For the record, he sees both employer and union nominated trustees as having the same paternalistic approach they bring to industrial relations in the workplace.
His only concession to the government consultation is that its proposal of encouraging more member elected members “is a good idea” and for the record, he favours the use of independents for skill sets not available on the current board – Energy Super employs an independent director for its audit and investment committee.
Henrick sees the price of paying for independents as coming out of salaries paid elsewhere in the fund, impacting on Energy Super’s ability to recruit the best people for the job.
“We are already competing for roles like CEOs with other financial services companies where there are grossly inflated salaries and to go that way is not good for members.”
This focus on costs has led Energy Super to seek the appointment of a general manager of investments rather than a chief investment officer.
“We are reluctant to use the term CIO, as people start talking huge salaries straight off, so we are trying to keep that price down, by making it a little different.” The fund, says Henricks, relies heavily on Jana for direction.
Similarly the example of larger funds paying to set up in-house management teams does not yet appeal to EnergySuper. “It might save a couple of dollar in fees,” says Henricks, “but there are so many good managers out there and consultants who are meeting them daily, plus we have been fairly successful in driving down fees to drive our Management expense ratios (MER) down.”
This cautious approach to big, expensive projects with no guarantee of a profit is borne out in his approach to investing in China. Where other funds are looking at gaining government licences to trade in A shares listed in Shanghai, he is waiting for the moment when such trades can happen without a license or a local partner.
“I believe the Chinese Government will, at some time in the not too distant future, facilitate the ability for us to do so. Or in other words, make it easier and simpler to invest there.”
EnergySuper is a believer in active management and its overall fees for its balanced fund are 0.43 per cent for base fees, with a 0.11 per cent performance fee paid for the year ending 2013. With administration costs added the total fee for a member with $50,000 in assets is a symbolic 0.99 per cent.
In the industry there is a fair amount of grumbling about trustees who have stuck around a long time and a perception that this might be holding back younger applicants and female applicants too. Henricks is aware the world is changing.
He has pleaded with the Electrical Trade Union to nominate a female representative to the board and states that even if a fund such as Energy Super only has 5 per cent of members who are female, that is enough justification for having a female board member – Energy Super is one of 11 super funds that currently have no female trustee directors.
“Within the next couple of years I will drop off the perch I can only hope that will also facilitate that a girl comes on as a director,” he says. “Certainly my board is no old boys club as the directors roll over fairly regularly and there has been a number of changes in the last couple of years. I have pleaded with the representative organisations to send along women, but they have not and I do the best I can.”
Energy Super balanced option returns to June 2013
1 year 15.9%
3 years 8.1%
5 years 3.8%
10 years 7.1%
Members June 2013 48,000
Assets June 2013 $4,674m
Proportion of assets in super default 65%
Net contribution flows 2012/13 $140m