Tim Wilson wants fresh inquiry into Hostplus conflicts

House Economics Committee chairman Tim Wilson has asked regulators to investigate "vertical integration" in the industry superannuation sector, after conflicts of interest between fund Hostplus and related party IFM Investors were raised.

In a letter to Australian Prudential Regulation Authority chairman Wayne Byres, sent on Monday and seen by The Australian Financial Review, the Coalition MP has called for a fresh investigation into the powerful trade union-linked industry super funds, which manage a combined $771 billion in retirement savings.

The request was sparked by the Financial Review's revelation that about 67 per cent of the assets in Hostplus' infrastructure investment option product were held by IFM Investors – a fund manager in which the $53 billion hospitality industry fund has an ownership stake – according to a third-party research review.

"Such a leak highlights a number of issues: a conflict of interest by the fund, a failure to sufficiently spread risk, and secrecy when such problems are identified," Mr Wilson wrote.

"I therefore believe APRA should conduct a review into the matter and the extent that it is it a problem across the sector."

The letter asked that APRA look specifically at the "extent of conflicts of interests that arise from the vertical integration" model of Hostplus and its fellow industry funds.

It is understood a separate representation was made to the Australian Securities and Investments Commission. Both agencies declined to comment.

'New line of questioning'

Mr Wilson, who is chairman of the House of Representatives committee and has oversight of the financial services industry, said the exposure of Hostplus' majority allocation to IFM "opened a new and important line of questioning we had not considered to date and will be pursuing".

He told Mr Byres that the committee had existing concerns about the lack of transparency about the commercial links between IFM Investors and its 27 industry super fund owners.

"On a number of occasions, IFM Investors have received questions from the committee and they have refused to provide evidence," Mr Wilson wrote.

"It is my conclusion that IFM Investors seem to believe, as they are ‘one-step-removed’ from the funds that receive the compulsory retirement savings of Australians, that they are ‘above’ the scrutiny and transparency justified for oversight of Australia’s retirement savings ... their secrecy is disturbing."

The committee has previously sought information from funds about the size of mandates allocated to IFM, as well as industry fund-owned property trust ISPT, but has been knocked back, as witnesses have cited commercial confidentiality.

Mr Wilson said the committee also wished to investigate the funds' capital allocation to ME Bank, which is also owned by industry super funds. The bank was forced into an embarrassing apology after it changed the rules on its redraw facility without informing customers.

In addition to writing to APRA and ASIC, Mr Wilson said the committee was preparing additional questions for trustees about allocations to fund managers and the findings of unpublished, third party research reviews.

Research house Lonsec's finding of the "material allocation" of Hostplus' infrastructure option to IFM, and concomitant "manager concentration risk", follows a review of the fund's flagship balanced option, which detected several serious liquidity risks.

Hostplus chief executive David Elia told another media outlet the fund was a victim of the tall poppy syndrome and posed no risks to members. He has declined multiple requests for comment from the Financial Review.