Recently The Australian newspaper published some articles whereby the Australian Private Equity & Venture Capital Association Limited (AVCAL), and some of its VC industry members called on the Australian federal governement to mandate the managed superannuation funds industry to contribute a percentage of those funds to venture capital.
This raises a number of interesting questions worthy of further research:
- Does any other nation use such a technique;
- If so what has been the result, for both the level of industry/business renewal and for returns to the investors, and a very distant last enquiry as to the impact on that VC industry; and
- Are there other asset classes into which investment from managed pools are mandated, if so which and performance measures, etc.
Below is an extract from the article, Venture capital roundtable;
Should there by more investment from the super industry in VC?
Woodthorpe: The line of least resistance is very much the way a lot of trustees are going. I haven’t taken any kind of risk that someone can be cross with me about later. And even if it all did terribly well, it won’t be significant enough for people to be cross with me for not doing more, so what is the point? I can’t see any reason why super funds should not be mandated to put some money in. They immediately throw up their hands and say you can’t mandate investment decisions. But I say, they mandate that they get 9 per cent of my salary every month, going up to 12. They mandate that they get a wonderful beneficial tax regime. So, given that their entire existence is by mandate, I don’t see why it would be unreasonable to do it. Perhaps it is an opt-out. Say 0.1 per cent of your super will go into VC, but you as an individual can opt-out and say “no”. [sic]
Smith: A bit of rights and responsibilities for the super industry.
Ryan: I think they need a performance blowtorch, to be frank. I am talking about as an investor and as a recipient of their funds. It is a free kick and a goal, 12 per cent free money, without any hard work. The performance has been poor, relative. What have they delivered?
Smith: We need some sort of mechanism where super funds, through some sort of indirect mandate with different options, have to put money into a fund of funds pool that gets put into managers in a professional way. So it is not going off into fluky vehicles. That would do a big amount to improve the supply of capital. [sic]
Downie: A lot of people are unaware that there is a VC industry in Australia. I tell my father I am an entrepreneur and he thinks I am Christopher Skase! There is a lack of understanding generally. We can do whatever they do in Silicon Valley here. It is just a matter of getting together and doing something about it.
Ronchie: I would love the opportunity from a super perspective to be able to contribute a portion of my super fund towards the sector that I work in. And I don’t know how I would facilitate that at the moment. It is not something that is easy to do. If there was a tick-the-box option that I could choose to put into the sector that I work in and believe in, I think that would be a positive. Especially given the damning performance of the funds I have been in previously.
Glenning: Even if their preference is to invest in the ASX, where do they think the ASX comes from? They are going to own the whole ASX soon because there are not going to be any new companies joining. If 0.1 per cent went into VC, that is to drive the returns for their other 99.9 per cent, because how can they invest in new companies that list an increase in value if they are not there. It should be in their best interests to do this. I think you need a bit more long-term thinking.
In particular I draw attention to the italicised statements of Woodthorpe (CEO AVCAL) and Smith (MD GBS Venture Partners). It seems to me there is an attitude of entitlement in these calls and, even more remarkably, Smith seems to claim that super funds are in no position to object because the money just flows to them without any work, and yet they have performed badly anyway. Does she not see the irony that the claim for a mandatory flow of money to the VC industry is effectively just saying well we also want to see a flow of these rivers of gold whereby we don’t have to do much, and by the way just how bad has been the return on investment from Australian VCs over the last ten years?
It is no way of raising a valid claim to share in the investment pool of Australia’s working populace. Any claim must be backed by solid facts demonstrating how, or why it is believed that to do so will be of direct and/or indirect benefit to those Australians. Nothing I have read from AVCAL or its members gives me any reason to believe they have done anything to prepare such an argument and I find that incredibly disappointing.
On that note I tried to present some research to Woodthorpe, yesterday following review of the articles, to assist AVCAL in better structuring their arguments this was how that worked out:
- I rang the AVCAL office (number on website) seeking Woodthorpe’s email address;
- Person answering the phone was very polite and acted professionally in advising me that the policy was “we can not give out her email address”;
- Me “what is the best way of getting correspondence to her?”;
- AVCAL “the best means is either email or by mail”;
- Me “so, one of the preferred ways is via email but you wont provide her email address?”;
- AVCAL “yes, let me check……yes that’s correct. There is a general firstname.lastname@example.org email address that goes to everyone in the office and from that we can direct it to her.”;
- Me “But what if its commercially sensitive and I only want it to go to her, not everyone in the office?”;
- AVCAL “You could mail it.”;
- Me “I will email it to the general email account, please tell me the name of her PA.”;
- AVCAL “She doesn’t have one.”;
- It was emailed and marked as being specifically to the attention of Katherine Woodthorpe;
- Within 5 minutes of sending the email I had a reply email, from Member Services, telling me “Your email has been forwarded and now rests with the Head of Research.” No name or details for this person because that would provide me with a personalised email address and perhaps even a higher level of service or just common manners.
The venture capital industry gripes about its poor reputation as being a combination of arrogant and ignorant, I wonder on what basis might that reputation have come about.