by Ben Potter
5 September 2018
Industry super funds could capture a quarter of business and mortgage lending in Australia as the banks reel from the royal commission's revelations of serious misconduct and a regulatory backlash that's already begun, investor Mark Carnegie said.
Mr Carnegie said the royal commission would be a "tide changer" ushering in up to two decades in which the industry super funds would claw back the banks' gains in superannuation and take a huge share of the banks' bread-and-butter lending business for themselves.
He said these changes would bring a style of capitalism to Australia that had more in common with Germany's participatory capitalism – in which workers take part in the ownership and supervision of the companies that employ them – than traditional Anglo-Saxon capitalism.
Speaking after presenting at the Australian Institute of Superannuation Trustees conference in Cairns, Mr Carnegie said he had suggested that ME Bank – the industry super fund owned bank – raise $1 billion in new capital to make itself a bigger entity to compete with the commercial banks.
"Twenty-five per cent of lending in Australia is going to be conducted by the super funds, not the banks," Mr Carnegie, founder of M.H. Carnegie & Co, a venture capital firm, told The Australian Financial Review.
"You have never seen a market opportunity like it. They were cutting your lunch for years [in super] and that's not going to happen anymore.
'Absolute tide changer'
"If you think about the last 15 years the banks have eaten huge amounts of the super industry. Now what's happened is over the next 15 or 20 years the super funds are going to end up with a huge share of the banking industry as well as taking their own industry back.
"I have said that the royal commission is going to be an absolute tide changer."
He said the change would not be welcomed by people in Australian business and politics who consider the German style of capitalism "inferior" to the Anglo-Saxon capitalism where profit is paramount and "can't stand the idea that the broader base of people are going to be capitalists".
"For people who don't like industry funds having a role in governance it's going to be bad," he said, citing small business minister Kelly O'Dwyer who as financial services minister famously couldn't bring herself to admit that industry super funds outperform bank-owned super funds even though data showed this to be the case.
But he said "the Germans seem to be doing just fine" and "for me who thinks German-style capitalism is good it's a positive".
AusPost could be a retail bank
Mr Carnegie said the royal commission would accelerate the shift to technology platforms in financial services and suggested that Australia Post had "the capacity to be a retail bank tomorrow" with its BillPay payments platform and could be a "tough competitor" for the banks.
"Exactly what the outcomes are from the royal commission I don't know. But it's going to mean that the tech platforms for delivering financial services are going to catch a tailwind," he said, comparing the potential for change to that brought about in retailing by Amazon.
"Ten years ago you'd have said no way. But it's where the next big change is going to come from."
Mr Carnegie said industry funds would be able to pick up business and mortgage lending business because "the banks are walking away from it" in response to tougher regulation triggered by the royal commission and APRA's earlier crackdown on loose lending in housing.
"Somebody has got to fill the gap," he said. "Because interest rates are so incredibly low there's an opportunity for the industry funds to come together and fill that gap."
He agreed with IFM Investors chair Garry Weaven who told the AIST conference that industry funds could also use their growing clout to invest in social infrastructure – such as educational facilities and retirement living – where demand is huge but governments are reluctant to invest.
"There's a whole of society investment opportunity – everyone agrees society will benefit massively," Mr Carnegie said.
"It's clear that there's a profit opportunity. You have got to find some way that the person who is putting the capital in gets an adequate return."