Evidence given yesterday to the Legislative Council Budget and Finance Committee by Under Treasurer Jim Wright had revealed that Funds SA had been engaged in the practice of “short selling” of shares which had been banned recently by Australian Government regulators.
Liberal Member of the Legislative Council, Rob Lucas, said today that short selling of shares involved big hedge funds, often from overseas, borrowing shares from institutional superannuation funds and then selling large quantities of shares to drive the price down. The hedge funds then buy back the shares at a lower price and profit the difference.
“Treasurer Kevin Foley needs to explain why a State Government agency is assisting in a process which has contributed to the financial crisis and the meltdown in share prices in Australia with the resultant collapse in earnings of superannuation funds,” Mr Lucas said.
“It should also be noted that Federal Treasurer Wayne Swan strongly supported the current ban on short selling by stating that it would help protect investors as well as the integrity of our financial markets.
“Mr Foley has just reported to Parliament that the financial crisis and share market instability has led to losses of about $2 billion in superannuation funds managed by Funds SA.
“Yet we now know Funds SA, which reports to Mr Foley, has been involved with the process of short selling of shares which has contributed to the financial crisis. Whilst Funds SA’s legislation prohibits directions by the Minister on investment matters, Mr Foley nevertheless is the Minister responsible for explaining publicly the actions of Funds SA.
“On the one hand, Mr Foley complains about the impact of the financial crisis on state finances and yet on the other hand South Australia’s major investment agency has been part of the problem.
“Mr Wright’s evidence to the Committee was that Funds SA’s recent – but belated – decision to stop the practice had been ‘because it was not a good look’. This was clearly belated recognition that they should not have been involved in this process,” he said.
Mr Foley’s explanation of Funds SA’s actions must also include answers to the following questions:
• What was the extent of Funds SA’s involvement and in particular over what period of time had they engaged in the practice and on how many occasions?
• What was the total number and value of shares loaned on each occasion and what was the payment received by Funds SA for each loan and what was the date of each loan?