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Second biggest super fund dumps Russian assets as Frydenberg piles on pressure

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Australia’s second biggest super fund says it had instructed its investment managers earlier this week to sell Russian debt and equity investments.

The $230 billion Australian Retirement Trust has joined a wave of investors disposing of assets in Russia, amid building pressure from the government.

In a statement on Thursday, the Morrison government said it had a “strong expectation” that Australian superannuation funds will review their investment portfolios and take steps to divest any holdings in Russian assets.

“The government welcomes the voluntary actions taken to date by some superannuation funds to divest their Russian assets,” Treasurer Josh Frydenberg said in a joint statement with the minister for super Jane Hume.

“While Australian superannuation funds only have a small exposure to Russian investments in the context of the $3.5 trillion superannuation system, it is important that Australia sends a clear and unequivocal signal that we condemn in the strongest possible terms Russia’s unprovoked and unjustified attack on Ukraine,” the pair said.

In a separate statement, the Financial Services Council (FSC) echoed the government’s sentiment, telling super funds it will work with them to help them navigate the government’s expectations.

The Australian Retirement Trust, which boasts some 2 million members and was officially formed on Monday following the merger of Sunsuper and QSuper, said it had earlier instructed its investment managers to sell any remaining debt and equity investments and not to make any new investments in either Russia, Ukraine, or Belarus.

The fund joins the $200 billion Future Fund, which had committed to offloading its Russian investments.

Aware Super, Rest and Cbus have also pledged to exit Russia as soon as possible.

In a written statement to InvestorDaily, Cbus confirmed it had implemented all sanctions imposed on Russia by Australia and the US.

“Separately to these sanctions’ regimes, since 2018 Cbus took additional action to limit purchases of Russian securities. We are mindful of geopolitical risks when making investment decisions,” a spokesperson for the fund said.

“As such, we have been underweight the benchmark in Russia within our emerging market equities asset class and at an overall fund level have very limited exposure (approximately 0.1 per cent of total assets). This will continue to be reduced when practical and we are continuing to monitor the situation closely.” 

Similarly, in a statement on Thursday, Rest stressed its intentions to divest any direct portfolio holdings of Russian securities in accordance with its members’ best financial interests and regulatory sanctions.

“We are actively engaged with our investment managers in assessing the political situation and the evolving sanctions,” it said.

AustralianSuper has now also pledged to wind down its remaining exposure and divest its holdings in Russia “as markets permit”.

The fund said it had reduced its exposure to Russian investments from 0.22 per cent to 0.07 per cent of total assets since June 2021.

“AustralianSuper is in full compliance with all relevant sanctions and, in accordance with our portfolio management approach, has been actively managing our exposure to Russian assets to address changing and emerging risks,” the fund said in a statement.

An earlier report by The Guardian indicated that the value of Russian investments held by AustralianSuper stood at $300 million, a sum which has since plummeted by $137 million as the share price of Russia’s Sberbank continues to slide. 

On Friday, Hostplus also issued a statement confirming it was committed to divesting its remaining direct holdings in Russia.

"We continue to work with our existing managers across our investment portfolios to achieve this outcome acknowledging that our ability is somewhat hampered by the Russian Central Bank ordering market brokers to reject foreign clients trying to sell Russian securities," Hostplus CEO David Elia said.

Divestments challenging

While funds weigh up their members’ best interests against the turbulent market conditions, it has become clear that exiting Russia may present them with further challenges.

Earlier this week, Moscow shuttered its exchange and announced a temporary ban on foreigners attempting to ditch assets.

Prime Minister Mikhail Mishustin said the ban was being implemented to allow foreign entrepreneurs to make guided, economic decisions and not ones based on “political pressure”.

Commenting on Russia’s latest kickback, AMP’s Shane Oliver said exiting Russia was difficult, period.

A foreigner looking to sell the Russian asset or exposure to the asset would have to find some way to transfer ownership of the asset to a willing buyer all the while outside of Russia. It’s possible but it would be a more complicated sale process and probably occur at very depressed prices,” Mr Oliver said.

“There will be a loss in value as lots of investors globally are trying to do the same thing at the same time. But investors would be seeing it as more a legal (given the sanctions) and/or ethical issue rather than an investment decision,” he explained.

With uncertainty around how super funds could completely exit Russia, Australian Retirement Trust’s chief investment officer Ian Patrick addressed concerns.

“We cannot rule out having some minimal exposure despite the best endeavours of our managers; nor can we rule out the likelihood that some of the companies Australian Retirement Trust invests in may have some exposure to assets in the affected countries,” Mr Patrick said.

“However, we certainly expect those companies to manage their businesses in accordance with all relevant sanctions and applicable laws.”

Mr Patrick said QSuper’s and Sunsuper’s exposures were very limited prior to the onset of the crisis.

“For example, Russian shares accounted for less than 0.2 per cent of the Australian Retirement Trust Super Savings account assets. Our debt exposure was even smaller, at less than 0.1 per cent. Our Ukrainian exposure was minimal – a very small debt exposure of circa $6 million, which was less than 0.1 per cent of total assets.

“In Australian Retirement Trust’s QSuper account assets there was no exposure to shares or bonds in either Russia or Ukraine and very limited exposure to the surrounding region, and that remains the case,” the chief investment officer said.

Maja Garaca Djurdjevic

Maja Garaca Djurdjevic

Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.