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Joint Standing Committee on Trade and Investment Growth
15/07/2020
Australia's trade and investment profile

HARPER, Mr Brendon, Head of Policy and Research, Australian Investment Council

TOLHURST, Mrs Robyn, Public Affairs Manager, Australian Investment Council

Evidence was taken via teleconference—

[12:03]

CHAIR: Thank you both very much for joining us today. This hearing is a legal proceeding of the parliament. The giving of false or misleading evidence is a serious matter and may be regarded as a contempt of parliament. The evidence given today will be recorded by Hansard and attracts parliamentary privilege. I now invite you to make an opening statement.

Mr Harper : Thank you for the opportunity to appear today before the committee's inquiry into diversifying Australia's trade and investment profile. The Australian Investment Council is the peak body for the private capital industry in Australia. Australia's private capital industry has approximately $33 billion in assets under management on behalf of domestic and overseas investors, which includes Australian and offshore superannuation and pension funds, sovereign wealth funds and family offices. Venture capital, private equity and private credit firms invest billions of dollars in early-stage and established businesses, spanning across almost every sector of our national economy. Close to 200,000 domestic workers are directly employed by businesses that our members have invested into across the economy. Independent research has found that one in nine new jobs in Australia were created by private-capital-backed Australian businesses. This capacity to nimbly respond to changing conditions and to generate meaningful employment will be increasingly important in the years ahead.

At this tenuous junction in our economy, it is vital that industry and government work together to drive our economic recovery and to position our nation to continue to flourish into the future. Ensuring Australia's trade and investment profile is appropriately diverse is an important aspect of positioning our nation for future economic prosperity. In considering our current and future needs, it's important that government policy and the national outlook are supportive both of traditional industries and industries that will drive economic growth and employment in the future.

Turning more specifically to the topic of this inquiry, the committee is no doubt aware of our submission to the committee's most recent inquiry. The world has definitely changed since September 2019, but many of our recommendations in that submission are also relevant to this inquiry. For example, policy recommendations aimed at enabling startups and scale-up businesses to succeed and become internationally competitive also assist in diversifying Australia's trade and investment profile.

To ensure appropriate diversity going forward, it is critically important that we support and nurture the industries that will drive our future growth and prosperity. This includes: increasing our focus and capacity capabilities on STEM skills to develop our local talent; drawing on the world's best talent where we have local talent gaps; being supportive of innovation; and, as a net importer of capital, ensuring we maintain our ability to utilise foreign capital. Additionally we should look at government co-investment as a vehicle to assist higher growth as well as to drive regional growth.

These are the substantive issues I want to mention. These are issues that we view as important as we consider how best to diversify Australia's exports and to attract investment. We are now happy to take any questions.

CHAIR: Thanks very much for that, Mr Harper. Thanks again, Mrs Tolhurst, for being part of this. Can I get an understanding of your membership base. You've done a very good job of describing who is a member. Are there any state owned enterprises that are members of your organisation, apart from sovereign wealth funds?

Mr Harper : We have Australian superannuation funds, which would not be categorised as that. No, we don't have any foreign state owned members.

CHAIR: What about those specific sovereign wealth funds? Do you have any government owned sovereign wealth funds that are members?

Mr Harper : Foreign sovereign wealth funds might invest through some of our members, but, no, we don't have any sovereign wealth funds that are members.

CHAIR: That's fine; I just wanted to get an understanding of that. What is the Australian Investment Council's view on the recent changes that strengthen national security provisions in our foreign investment regime?

Mr Harper : I think it's in everyone's best interests that we have a strong and robust foreign investment regime that includes ensuring who's investing and what they're investing into. We are very supportive, and have been for a long time, of a robust regime. As I'm sure the committee is aware, there is work currently being done with the Foreign Investment Review Board and other parts of Treasury in looking at that regime. We are engaged with the Foreign Investment Review Board on that. We are very supportive of a strong and robust regime.

CHAIR: Would the Australian Investment Council also be supportive of transparency arrangements in relation to foreign investment—for instance, the foreign agricultural land register?

Mr Harper : Yes, transparency is very much something we support in principle. I don't think we have a particular view on transparency as far as agricultural land ownership is concerned. But, in principle, we are very supportive of transparency.

CHAIR: One of the issues that's come up repeatedly, particularly with the agricultural sector in our hearing yesterday, is the lack of appetite amongst Australia's largest investment fund holders—that is, superannuation funds—for investing in agriculture or agribusiness, whereas we have pension funds, hedge funds and sovereign wealth funds from overseas—from the Northern Hemisphere, no less—that seem to have the appetite for it. There's almost a bit of weird dissonance going on there. It does not make sense that our investors would not have the appetite, and yet their exact foreign counterparts, like pension funds, would. Do you have anything to offer to that equation?

Mrs Tolhurst : The investment from superannuation funds is a very important part of our investment ecosystem, and some of Australia's largest funds are members of the Australian Investment Council. I think it would be fair to say that in terms of private capital investment from super funds about seven per cent of their overall investment is in the private equity, venture capital sector. It is also fair to say that, as an industry, while there's been growth in recent years, we are still developing. I guess we started later than other jurisdictions—for example, the United States—so the industry is still developing, but we are experiencing growth in investment from super funds on a year-on-year basis.

CHAIR: Is there anything that you would recommend the government should be doing to encourage domestic investment rather than having that investment leak offshore?

Mrs Tolhurst : It would be fair to say that there is a tremendous opportunity for coinvestment with government and the industry, including super funds. We've seen some good examples with the Biomedical Translation Fund where there are experts in the field in terms of venture capital funds who have already gone through that vetting process looking at good investments. They work with government on a dollar-for-dollar basis to find new opportunities in the market, so there are already proven infrastructure opportunities in Australia that perhaps could be tapped into in the future.

CHAIR: Could I also ask about the Belt and Road Initiative—I'm not sure whether the Australian Investment Council has a view around the Belt and Road Initiative from the People's Republic of China. Do you think we need to sign up to a Belt and Road Initiative—have state and/or federal government sign up to Belt and Road Initiative MOUs—for investment in this country in order to attract investment, or is this just superfluous?

Mr Harper : We typically don't comment on agreements with specific countries. Taking a step back, free trade agreements are quite beneficial and we're definitely supportive of free trade agreements and any initiatives that make it easier for Australian businesses to export and grow. Usually that leads to increased jobs and growth for Australian businesses. We don't have a specific opinion or a position on the belt and road project. We spoke about the foreign investment regime earlier, but I think it's important that there is a robust regime around foreign investment, and if we take it a step higher we're very supportive of free trade agreements generally.

CHAIR: Do you think it's going to be detrimental though to attracting investment in Australia by not being part of the BRI?

Mr Harper : I think moving away from relations with any country can limit the capacity or propensity for investment into or out of that country. That's just a general principle of moving closer or further away from any particular country, so there is the potential for that.

CHAIR: In deciphering that, you're probably more pro Australia signing up to the Belt and Road Initiative?

Mr Harper : I'm not sure I would interpret it that way. As I said, we typically don't espouse a view on agreements with particular countries. Our members invest in sectors across the entire economy, and those businesses export to many, many countries, China included, so we're generally supportive of any initiative which makes it easier for Australian businesses to export. But, as I said, as an organisation we don't have a firm view on the Belt and Road Initiative.

Senator MARIELLE SMITH: Thanks for presenting to us today. I have a question around access to capital, particularly in the startup space. Prior to the pandemic, one thing from startups that was regularly raised with me, particularly in the technology and financial technology space, was limitations on the local availability of capital investment and a low risk appetite from Australian investors in the technology space. I'm interested in your perspective on how the pandemic may have changed the access and availability of capital in this sector and whether, particularly, it has impacted upon the availability of local versus overseas investment.

Mr Harper : To your risk appetite comment first, obviously it's a pretty diverse financial sector, and venture capital private equity investors are definitely more on the risk scale, so I don't think there has been a shift from our sector away from a willingness to take on risk and a willingness to support new businesses. Particularly in the venture capital space, as I'm sure you can appreciate, some of these businesses are just funding ideas, so our sector has been very active in supporting small businesses and new ideas. I know there's debate about ability or willingness of other sectors to move that far down the risk curves, but one of the interesting challenges and feedback that we've received from members around COVID is about the inability to go and meet people and the inability to go and kick the tyres, as it were—to see the plants, to see the products, to meet with the management, to be able to sit down and talk. As much as it's good to get an idea of how viable the product is and what the product is, it's also very important to build those relationships. They've still been able to do so, being very nimble by nature and exploring new opportunities. There has been a pivot towards more online engagement and to more videoconferencing, as I'm sure you can imagine. In some cases it just means that there needs to be a couple more video meetings, where that may have been done in fewer physical meetings. But I don't think there has been a move away from a willingness or a capacity. Sometimes the due diligence is taking a little longer. We've spoken about the foreign investment regime changes. In some cases that may have led to some small delays, but I don't feel that there has been a move away from a willingness of domestic players, at least from our sector, to invest in those new businesses, and I also haven't received the feeling that there's a move away of foreign investors willing to invest into Australia. I think Australia is still quite an attractive market. We've weathered the COVID storm relatively well. We're still a well-governed, state-of-law economy, so I don't think that there has been a marked change away from supporting small businesses as a result of COVID.

Senator MARIELLE SMITH: Are you noticing a greater interest from certain foreign markets in terms of investing into Australia during the course of the pandemic?

Anecdotally, in terms of VC, I've heard that we're seeing more investors from areas like the Middle East who are interested in showing up to opportunities. Is that something you've seen reflected? Can you comment on the availability of capital from foreign markets at the moment?

Mr Harper : I haven't seen a shift away or any particular market drying up, if you want to use that language. I know there have been some larger investments or media coverage around interest from the Middle East, and some of that has not been through our sector. But I'm not aware of any countries being less interested or, to an extent, I guess, being more aggressive in their interest in Australia. I can't—

Senator MARIELLE SMITH: That's fine. It's anecdotal evidence I've heard, particularly from the financial technology sector, so I was just interested if that was something that had been reflected within your members or—

CHAIR: I've certainly heard the same, Senator Smith, particularly as to the interest from the UAE around more investment in Australia.

Mrs Tolhurst : I'd add that we certainly do have investment coming through from the Middle East. As well, Europe—if you aggregate the UK and other European countries—has a considerable amount of investment into Australia, and it's substantial, alongside the US as well, in terms of inward investment.

Senator MARIELLE SMITH: In terms of the pandemic's impact on your sector, do you think the impact on VC in particular has been pretty consistent across the board, or are you noticing that in certain locations it's a different environment as to the availability of VC in Australia?

Mr Harper : The impact across sectors has obviously been quite different. For those that are maybe a bit more digitally inclined, it's having a lower impact. For some VCs—for example, those that have to do clinical trials, as clinical trials are just not possible at the moment—there's been quite a lot of impact. If you are in more of the customer-facing segments, then obviously there's been quite a strong impact there. So, from what I've seen, it really varies by sector.

Senator MARIELLE SMITH: And by country? I'm interested to know if the impact we've seen in Australia is similar to the impact in the US or Europe or China or wherever. Do you have any comment on that?

Mr Harper : I don't have any hard evidence, but again, anecdotally, it's similar. If you look at some of the broad economic impacts, I'd imagine it's very similar on the VC side to the broader economy.

Senator MARIELLE SMITH: Thank you very much. That's all from me.

CHAIR: There being no further questions, thank you very much, Mr Harper and Mrs Tolhurst, for your appearance before us today. If there's a submission that you're going to provide us, we would like that by 31 July. If you were just going to forward some further information on some of the issues that have been raised, or in answer to questions that have been asked, then we'd like to have that by 14 August if we can. You're going to be sent a copy of the transcript of the evidence you've given today and you'll have the opportunity to request corrections to any errors in that transcript. But thank you very much for joining us.

That's the end of proceedings. Thank you very much for your patience. I think that all I have to do is to declare the hearing closed.

Committee adjourned at 12 : 24