Trust Company Takeover Means Less for NFPs

Why are the corporate manoeuvrings of trustee companies of interest to Australia’s Not for Profit organisations? Because two into one equals half the choice or fewer fundraising avenues for NGOs, says philanthropy expert Elizabeth Cham.

For most of this year there has been a three-way contest for the takeover of Australia’s oldest trustee company, The Trust Company. The first takeover bid was launched by Equity Trustees in February: this was followed in May by a higher offer from Perpetual [Trustees]. The Perpetual bid was endorsed by The Trust Company board.  In September, IOOF surprised the market by trumping the Perpetual bid.

Why are the corporate manoeuvrings of trustee companies of interest to Australia’s Not for Profit organisations?

The outcome of this corporate takeover is of vital importance to the sector as trustee companies are the largest administrators of philanthropic monies in Australia. These monies were left by generous (dead) individuals and families on the understanding that the trust/foundation would be maintained in perpetuity for the benefit of the most disadvantaged in the community.  The founders are no longer there to advocate and most have no independent (i.e. Non-trustee Company) trustees to challenge any decisions.

Today, trustee companies manage “over 2,000(sic)” charitable trusts and foundations with assets of approximately $3.2 billion.  During 2009/10 they distributed $175 million in grants to the Australian community, mostly via not-for-profit bodies[1]. Therefore, their corporate structure is of critical importance to the 58,000 charitable and not-for-profit organisations they were established to support. The outcome is also important to their colleague foundations in the philanthropic sector.

Trustee companies manage some of Australia’s most valuable and significant cultural, medical and scientific awards and prizes, including the Miles Franklin Literary Award, the Patrick White Literary Awards and the Ramaciotti Medal for medicine.  They also administer some of Australia’s oldest foundations and bequests such as the Alfred Felton Bequest, established in 1904, and more recent ones like The Shane Warne Foundation.

Before the 1984 deregulation of the financial services sector, there were thirty trustee companies in Australia. Today, due to amalgamations and mergers, this number has contracted to only eight private trustee companies and eight public ones.

The four largest private companies – Perpetual,  Equity Trustees, The Trust Company and ANZ Trustees – are all ASX listed companies which together:

• manage 91 per cent of charitable funds under management ($3 billion);
• administer 65 per cent (1,300) of all charitable trusts and foundations;
• distribute 89 per cent ($160 million) of discretionary funds each year[2] (data from Elizabeth Cham forthcoming thesis).

While these figures are a massive part of the philanthropic pie, they are but a tiny fraction of the sums managed by trustee companies, who provide a wide range of other services. Recently, Treasury estimated that trustee companies had approximately $510 billion under management.

Given the importance of trustee companies to philanthropy, So in light of this, it was no surprise that on 16th May, the Australian Competition and Consumer Commission (ACCC) announced it would publicly review Perpetual’s proposed acquisition.

In August 2013, the ACCC issued a preliminary finding that the Perpetual takeover “could harm competition”. But after the recent Federal election, on19th September 2013, the Commission announced that it “would not oppose the proposed acquisition” of the Trust Company Ltd. by Perpetual. In reaching this decision, the ACCC accepted “a court enforceable undertaking” from Perpetual that it would divest the 13.4 per cent shareholding the Trust Company currently held in Equity Trustees.

From a business perspective, further concentration may be logical, but did the ACCC consider the small philanthropic element in their deliberations and if so, how much weight did it receive? Did it consider the potential benefits in such a merger for the Not for Profit sector?

It is difficult to make a case that the reduction in such a small field provides any benefit at all for the beneficiaries of philanthropic monies: it means less choice and potentially less access to the money.

Trustee companies are now the sole trustees for the great majority of trusts and foundations they administer. As there is no legal and regulatory provision for Australian foundations to report publicly, there is a paucity of available philanthropic information, including even an accurate number of the trusts and foundations that trustees companies are sole trustees of.  

Ironically, the Trust Company is one of the most open in its dealings with the Not for Profit sector. Recently, it engaged the sector in developing its philanthropic policies. Given the culture of secrecy within philanthropy and trustee companies in particular, a merger will mean this constructive relationship will be lost.

Anyone who has applied for philanthropic grants should be interested and possibly concerned about the eventual outcome of this takeover bid.

About the author: Elizabeth Cham has worked in philanthropy for over two decades, including ten years as CEO of Philanthropy Australia. Cham is currently writing a PhD on the role of Trustee Companies in Australian philanthropy.

[1] http://www.fsc.org.au/downloads/file/policy/2012_0227_TrusteeServicesStatistics.pdf   [On 1 March 2012 the Trustee Corporations Association merged with the Financial Services Council (FSC)]

[2]  Data from forthcoming PhD thesis.