Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 433

Competition and concentration issues in Australian investment markets

It’s been disparaged as 'political theatre' and as 'a solution in search of a problem', but in our view The House of Representatives Standing Committee on Economics is dealing with some meaty issues at present. The task in hand is to “inquire into and report on the implications of common ownership and capital concentration in Australia.” This is motivated in large part due to the burgeoning $3.3 trillion superannuation industry growing significantly, and being forecast to dwarf the domestic equity market in decades to come.

The Terms of Reference also call for an examination of “the changing influence between individual investors and small funds, compared to larger funds.” Disquiet about proxy advisory firms still lingers; and there are reservations about concerted or ‘organised’ action. “This inquiry will ensure that we empower citizens, not organised capital… [as] common ownership risks bypassing democracy”, says Committee Chair Tim Wilson.

Hopefully the Committee will provide a thoughtful ‘compare and contrast’ of participatory capitalism versus, say, participatory justice or participatory politics. Members of juries and voters in Federal elections need no qualifications, no documentation (yet), and no reasons for their votes. There is no cap on membership of a ‘party organisation’. You’re allowed to advise people how to vote. And acting in concert is encouraged, with both hung juries and hung parliaments seen as failure.

Agency problems and misaligned incentives

Governance and agency risks also call for careful consideration. If progressive, university-educated super fund executives vote a social-conscience agenda that’s in tune with urban, pink-collar, worker-member-shareholders, well, that’s not ‘agency risk’, it’s ‘commendable alignment’.

But what if conservative, cigar-smoking company management are of one mind with conservative, cigarette-smoking blue-collar worker-member-shareholders, perhaps in logging or coal-mining industries? What if super fund executives usurp those preferences by managing portfolios, and voting, in line with their own personal (say, anti-tobacco or anti-logging) predilections?

To Wilson’s concern that “a handful of ‘mega-funds’ make all the decisions, and ordinary investors are locked out and higher costs are paid by Australians”, we would have thought that, rather than attempting to restrain the ‘mega-funds’ from fulfilling their responsibilities, the Committee would be better employed in encouraging, if not requiring, the ’ordinary investors‘ to fulfil theirs.

That’s analogous to compulsory jury duty and compulsory political voting. No-one is ‘locked out’. It’s quite the opposite. ‘Ordinary investors’ are entitled to vote as they see fit. Likewise, ordinary super fund members are entitled to exercise choice of fund; and it so happens that many do not.

There may be value, also, in the Committee examining safeguards as to the conduct of company elections. As Joseph Stalin allegedly commented: “Those who cast the votes decide nothing. Those who count the votes decide everything”.

Tensions between scale and competition

Turning from processes to outcomes, Australia’s relatively small, affluent population of 25.6 million is, on the face of it, susceptible to excessive concentration and oligopolistic behaviour. A paper by Sasan Bakhtiari (2019) at the Australian Department of Industry finds concentration is increasing, especially for industries that are already heavily concentrated.

By far the worst examples are in utility-type industries, given economies of scale and high price regulation. In other Australian-focused research, a study published by Gallagher, Ignatieva and McCulloch (2015) found that dominant companies operating in concentrated industries generated significant risk-adjusted excess returns compared to firms in more competitive markets. Interestingly, this experience is the opposite of that found in the United States.

Balancing stakeholder interests

The hinterland, where micro-economics borders macro-economics, is a lawless and turbulent frontier. When an undifferentiated, commodity product such as nickel abruptly triples in price, it’s not because enterprising fossickers in the Kimberley have been texting their counterparts in Sulawesi and Norilsk, in a collusive scheme that channels their inner OPEC. It’s because the global economy has hit its straps.

Even if one were to assume that corporate owners and managers possess more than an illusion of control, and even if their power and concentration is indeed increasing, they are still beholden to the Rule of Law. It will be for the Committee to establish whether the rules of the corporate playing field are adequate, and whether the umpires are adequately resourced.

ACCC Chairs, present and past, have recently been conducting a robust debate on that question. It also needs to be remembered that powerful vested interests have been undermining start-ups ever since Tiberius destroyed the formula for flexible glass. It’s not illegal to invent an innovation, and then not to use it.

Working in tandem with the Rule of Law, to keep corporate and super fund power in check, is the Law of the Jungle. Innovation, consumer caprice, technological change, complacency, and hubris all work tirelessly to undercut the most muscular of corporate behemoths. As a result of these forces, industry concentration is a lot like a lava lamp – an endless cycle of mergers, acquisitions, spin-offs, break-ups and oblivion.

Finally, it’s well-known that economists love paradoxes, and we’d highlight three to the Committee.

First, the Committee will need to decide whether the problem is too much bad intent – “collusion”, in the words of the Chair; or too little good intent – “blunted incentives”, in the words of the Deputy Chair.

Second, it’s hard to blame super funds for asset growth when it’s fuelled by Government-mandated super contributions; or for increasing concentration when the Government regulator, APRA, is pressuring funds to merge.

Third, you can’t criticise the ACCC for allowing a situation where “higher costs are paid by Australians”, when it’s the Government that legislates exorbitant fees for privatised services, in its attempts to maximise the enterprise value it extracts from other companies, private equity and super funds.

 

David R. Gallagher and Graham Harman are with the RoZetta Institute – a university-owned commercial organisation focused on solving industry problems.

 

4 Comments
Ruth
November 14, 2021

Earlier federal public servant pensions are payable from consolidated revenue. The Future Fund is a sovereign wealth fund set up so that those pensions will not be a drain, or will be less of a drain, on future taxpayers. I see nothing wrong with that. Those pensions are taxable. In contrast state pensions had no wealth funds set up and are funded by current state revenues, and are not taxable as they are constitutionally protected funds.

Danny Casagrande
November 14, 2021

I agree that the expanding pool of Superannuation money could be used domestically and profitably to establish and enhance Australian innovative industry and infrastructure. Making us more self sufficient as well as growing industry that can be adopted and sold profitably to other like minded democratic nations.

Ruth
November 14, 2021

That is not the purpose of superannuation.

Trevor
November 13, 2021

YOU SAY :
"The Terms of Reference also call for an examination of “the changing influence between individual investors and small funds, compared to larger funds.” Disquiet about proxy advisory firms still lingers; and there are reservations about concerted or ‘organised’ action. “This inquiry will ensure that we empower citizens, not organised capital… [as] common ownership risks bypassing democracy”, says Committee Chair Tim Wilson."
AND :
"First, the Committee will need to decide whether the problem is too much bad intent – “collusion”, in the words of the Chair; or too little good intent – “blunted incentives”, in the words of the Deputy Chair."
AND:
"To Wilson’s concern that “a handful of ‘mega-funds’ make all the decisions, and ordinary investors are locked out and higher costs are paid by Australians”, we would have thought that, rather than attempting to restrain the ‘mega-funds’ from fulfilling their responsibilities, the Committee would be better employed in encouraging, if not requiring, the ’ordinary investors‘ to fulfil theirs."
THERE is no evidence that "ordinary investors' give a damn about their "Super Funds" or what they do to generate a return ,
as long as it just keeps coming ! Collecting it is SO FAR AWAY in the future , it is seemingly irrelevant to their daily lives !
Occasionally "one or two" 'ordinary investors' point out the HUGE DISPARITY between the "FUTURE FUND'S " HUGE earnings and their less than remarkable , pathetic returns , of THEIR OWN FUNDS , but that soon subsides or is ignored by media !
$248 BILLION socked-away "for the future benefit of Australians" they say !
"In a portfolio update, the Future Fund - set up to cover future superannuation liabilities of public servants - stood at $199 billion at the end of the September quarter, delivering a 10-year return of 10.5 per cent. This compares with a return target of 6.1 per cent." YEAH ! For AUSTRALIANS ! NOT REALLY.....only those employed as "public servants" !
Tim...it seems to me that DEMOCRACY HAS BEEN WELL AND TRULY BYPASSED right there !
AND as for all the "Super Funds" , why not "incentivise them" TO USE THEIR HUGE ACCUMULATION OF FUNDS
to " BUY BACK THE FARM."....re-establish Australian Industries using "Super Funds" in a tangibly beneficial manner......
and ensure "our ability to be independent and self sufficient" and not beholden to LESS DEMOCRATIC REGIMES !!????
How about A RANGE OF ELECTRIC VEHICLES suitable to Australian Conditions , starting with the mining , manufacturing and design and exportation of a SUPERIOR PRODUCT ? And SHIP-BUILDING ? Seems logical for an ISLAND NATION !
And also , commence a NUCLEAR INDUSTRY , from mining all the way through to EXPORTING FUEL RODS and then
recycling and RE-EXPORTING and even our own NUCLEAR REACTORS on our own NUCLEAR POWERED SHIPS !
We have the skills.....but we never seem to have the money ! Why not USE SUPER FUNDS and benefit every AUSTRALIAN?
The INDUSTRIES , once operational , could then be "floated" to individual shareholders if THIS seems more democratic !

 

Leave a Comment:

banner

Most viewed in recent weeks

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Australian house price speculators: What were you thinking?

Australian housing’s 50-year boom was driven by falling rates and rising borrowing power — not rent or yield. With those drivers exhausted, future returns must reconcile with economic fundamentals. Are we ready?

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

Latest Updates

Shares

Why the ASX may be more expensive than the US market

On every valuation metric, the US appears significantly more expensive than Australia. However, American companies are also much more profitable than ours, which means the ASX may be more overvalued than most think.

Economy

No one holds the government to account on spending

Government spending is out of control and there's little sign that Labor will curb it. We need enforceable rules on spending and an empowered budget office to ensure governments act responsibly with taxpayers money.

Retirement

Why a traditional retirement may be pushed back 25 years

The idea of stopping work during your sixties is a man-made concept from another age. In a world where many jobs are knowledge based and can be done from anywhere, it may no longer make much sense at all.

Shares

The quiet winners of AI competition

The tech giants are in a money-throwing contest to secure AI supremacy and may fall short of high investor expectations. The companies supplying this arms race could offer a more attractive way to play AI adoption.

Preparing for aged care

Whether for yourself or a family member, it’s never too early to start thinking about aged care. This looks at the best ways to plan ahead, as well as the changes coming to aged care from November 1 this year.

Infrastructure

Renewable energy investment: gloom or boom?

ESG investing has fallen out of favour with many investors, and Trump's anti-green policies haven't helped. Yet, renewables investment is still surging, which could prove a boon for infrastructure companies.

Investing

The enduring wisdom of John Bogle in five quotes

From buying the whole market to controlling emotions, John Bogle’s legendary advice reminds investors that patience, discipline, and low costs are the keys to investment success in any market environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.