POWERED BY MOMENTUM MEDIA
Long-term outlook for corporate funds grows murky
As TelstraSuper joins the trend of merging into larger funds, industry experts are questioning the long-term viability of corporate offerings.
Cost pressures, regulatory requirements, and a more competitive superannuation landscape are prompting many corporate funds to reassess their positions and plan their next steps.
Industry experts said that fewer than a dozen such funds currently exist and this number is expected to decline further.
On Wednesday, TelstraSuper became the latest fund to announce merger plans, confirming it has signed a non-binding memorandum of understanding with Equip Super with the aim of exploring a “merger of equals”.
The merger would create a combined fund with some $60 billion in funds under management and more than 225,000 members.
Pending the outcomes of due diligence, it is expected that the merger will be executed via a successor fund transfer in late 2025.
Speaking to Super Review, Ian Fryer, general manager at Chant West, said corporate funds have struggled with trying to navigate cost pressures in the current landscape.
“It’s just so expensive these days to run a super fund, with all the regulation, and rightly so. Super funds are getting so much bigger, with so much money, so this level of regulation is appropriate,” he said.
These regulatory pressures have pushed companies like Telstra, with primary operations elsewhere, to re-evaluate the viability of their super offerings.
“Indeed, TelstraSuper themselves are saying, ‘We can get more scale if we’re not a stand-alone fund’. More scale means generally charge lower fees and potentially provide more services,” Fryer said.
“They’ve probably looked at their fund and said, even though we’re one of the biggest corporate funds – and this is the same with Qantas as well – it’s hard to justify staying a stand-alone fund.”
Qantas Super recently unveiled its own merger plans, having entered into an agreement in July with Australia’s second-largest super fund, Australian Retirement Trust. Like TelstraSuper, the $8.5 billion fund cited industry consolidation as having influenced its decision.
A number of other corporate offerings – including Commonwealth Bank Group Super, Woolworths Group and Endeavour Group, AvSuper, and Oracle Superannuation Plan – have also transitioned into ART in the last two years.
In a conversation with Super Review earlier this year, Joshua Lowen, insights manager at SuperRatings, said larger employers have historically viewed corporate plans as a way to tailor and enhance their value proposition to employees.
However, amid increased competition and regulatory reform, corporate funds are struggling to meet the size and scale necessary to keep their doors open.
“Combined with the reducing fee benefits as standard fee rates decline, they are losing their points of difference with large easily accessible open funds,” Lowen said, adding that operating a corporate fund often comes with a cost to the employer.
“Benefits are reducing and costs are increasing; it has made greater sense for these funds to merge.”
He predicted that, while tailored corporate solutions within larger funds will persevere, stand-alone corporate funds are unlikely to endure over the long term.
“This is less driven by their inability to meet the performance test than the sustainability of their cost structures when the number of new members available to the fund is limited,” Lowen said.
Chant West’s Fryer echoed this sentiment, saying that while some corporate offerings like ANZ Staff Super and the Goldman Sachs & JBWere fund have managed to work out a way to run at a “reasonably low-cost”, the broader corporate fund landscape is likely to shrink.
“There are very few at the moment and probably, over time, we’ll see more of them wind up,” he told Super Review.
AUTHOR
Rhea Nath
Rhea L Nath is a journalist on Super Review and InvestorDaily, with a focus on funds management, superannuation, and institutional investment. Previously, she covered small business and entrepreneurship news at Dynamic Business and multicultural issues at Indian Link Media Group. In 2022, she was named Young Journalist of the Year at the NSW Premier’s Multicultural Communications Awards.
Recommended for you
Jim Chalmers has defended changes to the Future Fund’s mandate, referring to himself as a “big supporter” of the sovereign wealth fund, amid fierce opposition from the Coalition, which has pledged to reverse any changes if it wins next year’s election.
In a new review of the country’s largest fund, a research house says it’s well placed to deliver attractive returns despite challenges.
Chant West analysis suggests super could be well placed to deliver a double-digit result by the end of the calendar year.
Specific valuation decisions made by the $88 billion fund at the beginning of the pandemic were “not adequate for the deteriorating market conditions”, according to the prudential regulator.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
