Start-ups threatened by tougher super disclosure rules

Growth in the Australian start-up sector could be damaged unless the government strikes the right balance in setting the investment reporting obligations for superfunds.

The government is expected to release draft regulations for a key part of the Stronger Super reform package introduced by Labor and scheduled to start from July 1. The regulations will determine the investment portfolio disclosure rules for superfunds with industry groups warning against making the reporting requirements too onerous.

They have warned that, if the requirements are too tough, superfunds will need to list all the investments they have made in companies. This would lead to a range of unintended commercial consequences.

For example, a superfund that invested in an Australian based venture capital fund would need to reveal each company in which the venture capital fund had invested and the value of those investments.

Director of Investments and Economy at the Association of Superannuation Funds of Australia, Gordon Noble, told Dynamic Business there would be significant commercial consequences from this approach.

“The worst case scenario is that there is a requirement to list what you invest in right down to the entity level and that would include all the investments of a VC (venture capital fund),” he said.

“The smallest level of disclosure would be to only disclose any investment that was over 5 per cent of your portfolio. It could be implemented in such a way to make the actual disclosure almost zero.”

Mr Noble said that ASFA and other industry bodies had been pushing the government to ensure that disclosure obligations were not too onerous. He said that, in a commercial environment, many companies would object to their valuations being made public.

He also said venture capital firms in the US and the UK had taken a “blackbox” approach to their own investments and would not disclose them, making investments from Australian superfunds problematic.

“If we had this (onerous) disclosure requirement it would be difficult for an Australian super fund to make an investment into a US VC because the US VC would not accept the investment money,” he said. “We are hopeful that we will get an outcome that will address the confidentiality issues.”

Some venture capital firms like Blackbird Ventures have warned that tough reporting obligations would have a profound impact on the Australian start-up community, anxious to avoid their performance being gauged by potential investors.

Rick Baker, the co-founder of Blackbird Ventures, has spoken out about the problem. He says the valuations of superfunds could be used by potential future investors to try and monitor the performance of start-ups, but says this would be a flawed way to gauge the success of a start-up.

Michelle Deaker, the Managing Partner and Executive Director of Australian venture capital firm, One Ventures, also told Dynamic Business there were problems with the imposition of onerous disclosure obligations although she clarified that One Ventures had no institutional investors.

“However, I understand the concern around what the new disclosure legislation could mean to privately held venture-backed companies receiving investment from institutional investors who may become bound by such disclosures,” Dr Deaker said.

“Depending on the level of disclosure, they may fear that their information is more widely accessible to competitors and also may consider it less attractive to seek investment from funds with institutional investors who are obligated to meet new disclosure regimes.”

Dr Deaker said the consequences would ultimately depend on the extent of disclosure and the “breath of dissemination of that information to the public market”.

Mr Noble said the government needed to release the draft regulations, consult widely and introduce them for approval to the Senate (which has the ability to disallow them) before the industry could start to implement them.

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