Merging ‘inevitable’ for smaller super funds

The “writing is on the wall” for smaller superannuation funds, according to Mercy Super, and they will have to decide whether to merge now or try to continue for a few more years.

It was announced this week that Mercy, which focused on healthcare employees in Queensland and had 13,000 members, would merge with HESTA.

Speaking to Super Review, Gregg Lapins, manager of investment portfolios at Mercy Super, said the fund had seen strong performance but had opted to merge anyway to ensure the fund would be sustainable for the future.

“The writing is on the wall from the regulator for smaller funds, it is such a significant shift,” he said.

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“We are in a strong position now with our performance so we had to decide was it better to merge now or to try and continue and merge in five or 10 years when it might be harder to do so?”

Earlier this week, Michelle Gardiner, trustee director at CareSuper, said smaller super funds were being forced to consider their sustainability and were having to decide between meeting members’ objectives or meeting the Your Future, Your Super performance test to ensure the fund’s continuity.

Lapin also stated that Mercy’s small size had made it harder for the fund to ensure diversification, particularly in light of meeting the Your Future, Your Super performance test. Referencing real estate and infrastructure exposure, he said funds were now expected to hold a broader range of assets in this sector which could be hard for small funds to obtain.

“Real estate is problematic, we were disproportionately allocated to commercial offices and retail as we are only a small fund. It is hard to get the differentiated exposure like hospitals to be more aligned with the benchmark when you are small.

“We have tried to get exposure in that space, particularly as we represent healthcare workers so it would be good to put our members’ money back into healthcare, but we haven’t been successful.”