On the one hand, investors on Macquarie’s superannuation platform who have lost money in the collapse of the Shield master fund can consider themselves very unlucky. On the other hand, their “choice” of Macquarie as trustee could be seen as a stroke of the greatest fortune.
And the bail-out of Shield investors on the Macquarie super platform raises serious questions about whether a similar deal could ever be contemplated by trustees of profit-to-member funds, or even smaller for-profit funds.
A compensation bill of $321 million would be well beyond the capacity of lesser organisations to pay – although in practice the cost to Macquarie is likely to be much less than this.
While reports focus on the headline figure, the amount Macquarie ultimately pays will be this amount less whatever it can claw back from liquidators of Shield, and this has been estimated as being as much as 70 cents in the dollar – or almost $225 million on Macquarie investors’ holdings – leaving it probably less than $100 million out of pocket.
Great PR work that, generating $321 million of “goodwill” for about 30 per cent of its cost. But good PR doesn’t pay dividends so the cynic might ask well, what else is in it for Macquarie? Who knows – as the holder of $321 million-worth of units, there could be a chance for Macquarie to work closely with the liquidator to realise even more from the managed sale of Shield assets and to recoup more than 70 cents in the dollar – or even (whisper it) make a profit.
No one structures a deal quite like Macquarie. As trustee of the Macquarie Superannuation Plan, Macquarie Investment Management will sell to a related entity, Macquarie Financial, the beneficial ownership of all Shield units it holds on behalf of “affected investors”. This raises cash that will be paid into investors’ IDPS or superannuation accounts.
Macquarie Financial will then essentially tip in more cash to top-up investors’ accounts to get them back to their initial investment, minus any withdrawals they made after the date Macquarie Investment Management should have placed the relevant Shield units on a watch list.
It was the failure to do this – which would have led to further monitoring of or “other follow-up action” in respect of the Shield fund – that led to Macquarie Investment Management being pinged for failing to act “honestly fairly and efficiently” in discharging its obligations as a financial services licensee.
Macquarie Financial is not the trustee of the Macquarie Superannuation Plan (Macquarie Investment Management is) and is not required to hold an operational risk reserve so, while Macquarie Investment Management has been pinged by ASIC for contravening the Corporations Act, it will not itself be making a direct contribution to investor compensation.
The access to the Macquarie Group balance sheet is integral to the deal, and that’s not a resource profit-to-member fund trustees have access to. And even smaller for-profit fund trustees don’t have access to the same depth of capital.
Into the breach
The court enforceable undertaking and an agreed statement of facts together outline how the breach of the Corporations Act occurred.
Macquarie Investment Management, as trustee of the Macquarie Superannuation Plan, had a range of obligations, including choosing the investment options available to members; reporting regularly to members; exercising powers in the best financial interests of the beneficiaries; and assessing the liquidity of investments on an ongoing basis “through various measures”.
An investment governance framework in place at Macquarie provided that the Macquarie Investment Management board was “ultimately responsible for investment governance, supported by a delegated committee and a management team”.
The responsibilities of the Macquarie Investment Management board included approving investment objectives; approving investment strategies that reflected its duties to beneficiaries; regularly monitoring and assessing performance against investment objectives; and taking appropriate and timely action on investment matters.
Between 1 March 2022 and 5 June 2023 Macquarie should have placed various classes of Shield units on a so-called watch list, and that should have triggered “further monitoring action or other follow-up action”.
But they weren’t placed on the watch list and no further monitoring or follow-up action took place, and as a result, “[Macquarie Investment Management] failed to do all things necessary to ensure that the financial services covered by its financial services license were provided efficiently, honestly and fairly”.
After ASIC established that, Macquarie had the choice of either fighting the issue through the courts or coughing up. It chose the latter, obviously, but as the master dealmaker the organisation is, there’s more to the deal – or in this case, maybe less – than meets the eye.
What a surprisingly cynical take by Hoyle, whose reporting I otherwise generally like.
So what if Macquarie made a pragmatic decision that would reap them some goodwill? That ultimately is in the favour of the clients who got their money back. The “normal” thing to have done would be to just fight it out with ASIC and let the courts decide – that would have been the cheaper option, with potential for significant upside if the court found in their favour.
They obviously made an internal calculus that their case was weak and that everyone, including their brand, would be better served with this landmark deal. That’s not cynical dealmaking – that’s responsible corporate governance.
Yes, Macquarie might recover 70 cents in the dollar from liquidators. Yes, they structured it cleverly through related entities. But focusing on these mechanics completely misses the forest for the trees. This is a $321 million commitment that sets a new standard for how platforms should respond when things go wrong on their watch.
It’s too easy to be chronically cynical when it comes to Australian financial services, but on this instance I think Hoyle has missed the larger and far more important points: a major institution admitted fault, agreed to make clients whole, and did so without years of litigation. That’s the headline here, not the deal structure or potential recovery rates.
Would a profit-to-member fund have the resources to do this? Maybe not. But that’s an argument for stronger capital requirements, not a criticism of Macquarie for having deep enough pockets to do the right thing.