Picking winners needs super funds to work
Ben Potter

Bill Ferris, the veteran venture capitalist and handpicked innovation czar for the government under Malcolm Turnbull, has a blunt message for the government if it really wants its latest initiative in picking advanced manufacturing winners to work as a post-COVID-19 stimulus measure.

They will have to learn to work with instead of in opposition to the big super funds – including the industry super funds – because outside of the government they are the ones stepping up to the plate to provide the patient capital for long term technology, biotech and medical inventions to be turned into products.

Bill Ferris at AFR Innovation Summit 2019…he says the government’s challenge is not just to create jobs post-COVID-19 but to create jobs in sectors that are going to prosper in the future. Peter Braig

“The government of the day and the major savings institutions of the day in particular our super funds have to co-exist and align and I think they will come to that overall alignment,” Ferris tells The Australian Financial Review.

“We all know that unless we do it the country is not going to get the best results. So we have got to take it on, we have got to be on the front foot with that.”

Ferris says the challenge is not just to create jobs post-COVID-19 but to create jobs in sectors that are going to prosper in the future, such as technology, biotech and medical products and not just in the traditional areas.

“That’s where you need smart savings [with time on their side]. That’s where private investors and governments have to work together.”

Super funds are not perfect. The industry funds got a rails run out of the default super system embedded into industrial agreements which enabled them to build large pools of patient capital.

Some underperforming small funds rejected mergers that would have benefited their members because the trustees didn’t want to lose their sinecures.

Yet by default or design – or a bit of both – the large pools of capital at the top of the super fund performance tables are now the same pools of capital available to be invested outside the vanilla options of equities, bonds and real property and into Australia’s growing pool of venture capital among other “alternative” investment categories.

Ferris names the government’s Biomedical Translation Fund as a standout example of government and private capital working together to kick goals in biotech and pharmaceuticals.

The BTF was given $250 million by the Turnbull government in 2016 to be natched dollar for dollar by the private sector, and Melbourne-based Brandon Capital took $115 million, matched that with money from blood products giant CSL, and super funds AustralianSuper, Hesta, Statewide and HostPlus, and deposited the combined $230 million into its Medical Research Commercialisation Fund. Ferris chairs the MRCF.

Ene Respiratory, part of Melbourne-based Ena Therapeutics, has emerged from that nursery with a novel nasal treatment originally developed to boost the human immune system to fight common colds and flu which has now proved successful in reducing COVID-19 virus levels by up to 96 per cent in a “gold-standard study on ferrets” conducted by Public Health England, a government agency. Phase one human trials of the product – INNA-051 – could now take place within about four months.

What’s exciting about this, Ferris reckons, is that if it is successful in human trials it could be manufactured in Australia without exorbitant expenditure on capital equipment – because it is a single molecule product – and exported to the world to help control COVID-19 until it is eradicated through vaccination.

As such, it represents one of the range of tools doctors will need in their gladstone bags alongside the hoped-for vaccines to help reduce the virus to nuisance levels from the threat to life, limb and livelihood it represents in 2020.

White labeling ‘growth centres’

It would be easy to dismiss the Morrison government’s new policy of picking winners in resources and critical minerals, food and beverages, recycling and clean energy, and defence and space as a modestly updated version of the Abbott government’s 2015 policy of establising “growth centres” in broadly the same areas.

The growth centres themselves were reheated versions of the former Labor government’s innovation partnerships, and Labor proved unable to convince global carmakers to develop and export green cars and electric vehicles from Australia instead of more favoured and populous regions.

Of course, the government isn’t dredging up the memories because the growth centres with the exception of MTPConnect, the medical devices centre – were hardly an inspirational success. deed the coalition’s entire record in government on advancing high tech and manufacturing since September 2013 has been pretty dismal – unless you measure success in terms of further shrinkage. Manufacturing shrank to below 6 per cent of GDP.

Business research and development flatlined or fell slightly as a share of GDP under Labor and then commenced a steeper decline under the coalition, according to the Bureau of Statistics. Gross R&D spending – government, universities and private – retreated from 2.25 per cent of GDP to 2.09 per cent of GDP under Labor and then dropped sharply to 1.79 per cent over the next four years to 2017-18 under the coalition.

Roy Green, emeritus professor at UTS and chair of a number of innovation bodies, says he hopes the government has learned from seven lost years in manufacturing policy because we are maintaining a first world lifestyle and economy on the back of a hollowed out, third world industrial sector.

Green says if policies to boost advanced manufacturing are to be successful they need to be backed by real money and institutional support. For example, the growth centres were launched with $180 million in the budget; Britain’s more successful catapult centres were launched with the equivalent of about $3 billion and similar centres in Germany, the US, Finland and Sweden have also been more consistently supported.

Promisingly the government is allocating serious money to its latest push – $1.5 billion initially.

Of course, with our resource riches we are never going to match the 15 per cent to 20 per cent GDP shares of manufacturing in countries like Germany, Switzerland and Ireland.

But resources and especially energy exports face an uncertain future in a carbon-constained world so we should be making much more of the world class research that occurs in our universities and research centres. Given the patchy record of past efforts the proof here will be very much in the eating.

Ben Potter edits the companies & markets section. He previously wrote on energy, climate change and innovation, and has been Washington correspondent and opinion editor. Connect with Ben on Twitter. Email Ben at bpotter@afr.com

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