Growth Fund gets Senate green light

Denham Sadler
Senior Reporter

A Senate Committee has given the green light to the government’s plan to contribute $100 million of taxpayer money to a business growth fund following a “ridiculously short” inquiry.

Legislation paving the way for the Commonwealth to chip in $100 million to the Australian Business Growth Fund (ABGF), which will provide “patient capital” to local SMEs, was referred to the government-led Senate Economics Committee on 6 February.

In the final report, released late on Friday, the government and Opposition produced a bipartisan report recommending passage of the legislation, despite acknowledging a series of concerns.

Business Growth Fund
Patient capital: Growth fund gets the go ahead

While Labor did not provide a dissenting report, crossbench senators criticised the bill, labelling it a “con” and urging the Senate to reject it.

The committee did acknowledge concerns raised during the consultation, including potential breaches of competitive neutrality rules, a lack of data about whether there was a funding gap in the market, whether the fund would target companies that can already access capital and a lack of detail in the legislation.

But it gave the Senate the green light to pass the bill, with the only other recommendation being that government and shareholders of the fund should consider allowing for the underwriting of investments too.

“The Committee is of the view the fund, effectively targeted, may provide a source of patient capital to some SMEs and fill a potential gap in the market. The Committee also acknowledges the importance of these SMEs having vital access to capital to allow them to flourish and fulfil their potential, in turn leading to greater job creation and growth in the economy,” the report said.

Labor will now likely support the legislation unammended after it did not offer a dissenting report or additional comment to the Committee’s final report.

The fund aims to fill an apparent gap in the market for growing companies approaching a Series A round that don’t wish to give up control of the business or take on any further debt.

Along with the Commonwealth, each of the big four banks have pledged $100 million for the fund, with Macquarie Group and HSBC to also contribute $20 million each.

The fund will make equity investments of between $5 million and $15 million to Australian businesses with annual revenue of between $2 million and $100 million, and three years of revenue growth and profitability. The fund would take equity positions in the businesses of between 10 per cent and 40 per cent.

The fund’s investment mandate would be developed once its board and chief executive was appointed by the end of the year.

Greens Senator Peter Whish-Wilson did provide a dissenting report, slamming the concept of the fund and the rushed process behind it.

He said that fund is a “con” that would “further entrench the market power of the major banks” by giving them a concession on the risk-weighting of loans to SMEs.

“Those banks that are already being given a competitive advantage through preferential prudential rules will be given a further competitive advantage through even more preferential prudential rules,” Senator Whish-Wilson said in the dissenting report.

Senator Whish-Wilson also criticised the government for rushing the process, with just five days given to initial consultation on the legislation, and two weeks for the senate inquiry.

“The government’s rush to establish the ABGF is both very concerning and very telling. The two weeks given to this Committee to conduct an inquiry into this bill was ridiculously short,” he said.

“This haste might be explained by the failure of the government to have gathered even the most basic of information about the market that ABGF is seeking to intervene in, let alone establish what the problem is and why the ABGF is a solution.”

The Greens will opposeg the bill when it comes before the Senate this week.

Centre Alliance Senator Rex Patrick also provided additional comments to the report, saying the implementation of the fund “comes with concerns”.

Senator Patrick said the Senate should not vote on the legislation until it has further details on its investment mandate and governance arrangements, and until it is determined whether it complies with competitive neutrality rules.

“The Senate will be asked to vote on the commitment of $100 million of public money without an understanding of the governance arrangements for taxpayers’ money or, indeed, the fund’s investment mandate,” Senator Patrick said.

The fund should also be established without the $100 million in Commonwealth money, Senator Patrick said, similar to other funds in the UK and Canada.

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