Money migration a missed opportunity

HERE’S an idea. Instead of lining up Gold Corporation for privatisation – or even the sale of its trading arm – why not consider it as a cornerstone of a major new Western Australian financial institution?

A local version of the Queensland Investment Corporation. Along with Gold Corp put state super fund GESB, the Insurance Commission of Western Australia, the WA Future Fund, even parts of WA Treasury Corporation.

Go all in and include the investment activities of government agencies and instrumentalities.

Then there’s the Metropolitan Cemeteries Board, which has done such a splendid job managing cemeteries it has accumulated an equities portfolio worth $74 million.

What the gravediggers and almost all other state government bodies have in common is that they outsource their investment management, interstate and overseas, in the MCB’s case to Seattle-based Russell Investments.

Aggregated, the loot stretches well into the billions, generated out of WA endeavour, managed by wise folks from somewhere else.

They look great and sound impressive. Mostly they buy the index; often (like Russell) they invest WA money in their own funds.

Slowly, inexorably, management of WA government money has drifted cross-border, and with that goes the talent pool and any inclination towards the jurisdiction in which the funds were generated in the first place.

Now, the biggest native fund manager is Packer & Co, whose Investigator Trust fund has about $2 billion under management and, recent Russian skirmishes aside, has been an overwhelming success.

But the big WA government dollars have gone east, and overseas, to safer places, or so the story goes.

It’s the funds management equivalent of buying IBM and not getting sacked.

The cultural cringe runs deep, founded in the dark days of WA Inc when the Burke government’s attempt to mobilise latent state assets in the interests of taxpayers fell afoul of bewitching entrepreneurs.

Ever since, governments of all colours have made a volte-face when confronted with anything remotely risky in financial services.

You get the impression people don’t want to think about it because Western Australians can’t be trusted to get it right.

This is lazy thinking, lacking imagination.

There were solid reasons to privatise Bankwest and SGIO in the 1990s, but the economic and geopolitical settings now are dramatically different. More recently, the drift has been less obvious.

 Two years ago, WA Super parked its $4 billion funds under management with Sydney-based First State Super, now Aware Super, whose CEO Deanne Stewart said at the time “size and scale matter”. No kidding.

So, why not in WA? There’s a good role model to follow, or at least study closely.

Taxpayer-owned Queensland Investment Corporation manages the long-term investment requirements of the Queensland government.

There have been hiccups, for sure, but largely QIC has been a ripping success, delivering on its charter, broadening its reach into wholesale and retail funds management, and having an unapologetic bias towards Queensland.

It launched in 1991 and now has $99 billion under management, with a global reach and with an emphasis on alternative asset classes.

Arguably, QIC’s greatest significance is the solid platform it has given the Queensland economy: an equity and debt provider for corporates and projects of all sorts, the spin-off professional services that have grown there to support it, and the jobs and professional competence it has created among actuaries, fund managers, analysts, debt experts, and alternative investment specialists.

And there’s the opportunity for WA: absorb COVID’s self-sufficiency lessons and seize the opportunity to turn the state’s enormous government funds management activities into something self-owned and directed; and include Gold Corp as part of it.

Spotting opportunity and pricing risk are challenging, and playing favourites got the WA government into fatal trouble in the 1980s.

But that’s not an acceptable reason to stand away from the market.

In recent years, it has meant missing out on extraordinary WA resources success stories where institutional equity ownership lives interstate or overseas.

Then there’s infrastructure projects such as the rollout of hundreds of standalone power stations by Western Power and Horizon Power in the past couple of years, where the state-owned utilities looked to the private sector for implementation.

The biggest provider to the WA government utilities is Pacific Energy, Perth-based and delivering big wins for its owner: you guessed it, QIC.

• John McGlue is principal of advisory firm Castle Gates and a member of the Australian Takeovers Panel