Hostplus chief executive David Elia appeared before the royal commission yesterday and was asked about the marketing expenditure of his fund’s administration reserve.
The reserve, which Mr Elia said currently stands at approximately $170 million, receives the $78 annual administration fee of Hostplus' 1.1 million members.
“The funds are used for marketing, administration, salaries, office overheads, and other operating expenses”, he said.
Counsel assisting Eloise Dias asked Mr Elia about the fund's marketing budget – specifically, corporate entertainment.
She noted that Hostplus, like other superannuation funds, was asked by the royal commission to produce “certain credit card statements”.
“Does Hostplus host employers and other stakeholders each year by taking them to the Australian Open?” she asked.
“That is correct,” said Mr Elia, noting it is “probably our flagship corporate event” and that in 2018 Hostplus invited 120 employers who accounted for approximately $4 billion in funds under management and about 160,000 members.
Hostplus spent $260,000 on corporate packages at the 2018 Australian Open, he said.
“It’s a great way certainly from my perspective and the executive team’s perspective to establish very, very early on and retain the relationships that are absolutely critical in terms of retaining the default fund status of our members and, therefore, retaining the members,” Mr Elia said.
Ms Dias asked why, given the superior returns Hostplus has delivered over the years, “employers need to be entertained in this way” to choose or retain Hostplus as their default super option.
“Our competitors are doing exactly the same thing. In fact, they are there, whether it’s the retail funds, whether it’s, you know, a number of other industry funds. Different organisations will do different things in order to hold on to those relationships,” Mr Elia said.
Ms Dias asked Mr Elia if it “concerned him” that he “had to do this to retain members”.
“It does. And I wish I didn't have to do it, but the reality is is that it is a competitive landscape that we're dealing with,” Mr Elia said.
“I don’t like the fact that we lose default fund status or lose employers to other competitors, to poorer performing funds, high fee paying funds,” he said.
Commissioner Hayne intervened to observe that the premise of Mr Elia’s comments was that “performance is not enough to sell”.
“If it was a rational market, I think Hostplus would be – should be – 10 times the size of AMP. Should be 10 times the size of any of our competitor funds,” Mr Elia said.
“It’s just illogical to think how underperforming funds, high-cost funds, continue to grow at the expense of high performing funds. So there are other factors at play,” he said.
Hostplus also spent $40,000 on tickets to Etihad Stadium in April 2018, which Mr Elia said were mostly used to reward the fund’s call centre staff.
In addition, the senior management of Hostplus were treated to a dinner at the high-end Melbourne Chinese restaurant Flower Drum in December 2017.
“If I wish to do something special for [my staff] to make them feel special, to effectively retain their loyalty, you know, to the fund then I fundamentally believe that our members are better for it,” Mr Elia said.
The royal commission heard that APRA had expressed concerns about Hostplus’ $260,000 expenditure on the Australian Open after being alerted to it by a whistleblower.
The whistleblower also said Mr Elia took his wife and family to the Australian Open each year, and benefited from Qantas Frequent Flyer points on his corporate Amex card.
Mr Elia defended taking his family to the tennis on the basis there were cancellations and that corporate packages were a “sunk cost”.
He also said his corporate Amex card has since been changed to a ME Bank card, which does not accrue Frequent Flyer points.
Asked whether Hostplus could reduce its marketing budget if it achieved greater scale through mergers, Mr Elia revealed the fund is currently in merger discussions with a smaller fund.
The hearings continue.
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