Reconsidering super fund mergers

With smaller superannuation funds facing increasing pressure to merge and amalgamate, a Super Review roundtable considered the point of a merger where the fund is performing well.

Mike Taylor, managing editor, Super Review: Another thing Ross Jones raised yesterday – and I thought it was a good thing to actually say – was with respect to fund mergers and amalgamations and the imperative to necessarily merge smaller funds. He made the point that if they’re performing, what’s the point of mergers? 

I raise this because I was reading the Australian Financial Review a week or so ago and I noticed there’s talk that Alex’s fund is about to merge again, and I just didn’t realise you were that bosom with that particular fund.  

Alex Hutchison, chief executive, Energy Industries Super: Oh Mike, how do I say, what do I say? Look, we’re simply, in all seriousness, seeking balance and fairness in reporting.

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It would have been fantastic to have received the telephone call from that journalist simply asking that question, because in our view that report was 100 per cent incorrect and it was just very disappointing. 

I don’t like commenting on merger stuff because it’s something that’s always under consideration. The report was simply 100 per cent incorrect and we’ve made enquiries with that other fund and they’re of the same view.  

Mike Taylor, Super Review: Do you think, given the size of your fund and the political climate in New South Wales being what it is, that there isn’t any imperative for it to move, or do you think the performance and everything else falls under the APRA thing about whether you’re performing okay, that you don’t have any problems? 

Alex Hutchison, Energy Industries Super: I think we’re performing strongly. I think we’ve made a number of real positive changes and at the end of the day we’ll always do what’s best for members. 

Is merger part of our strategy?

Yes. I think if you spoke to any CEO of any fund, if they didn’t say merger was a part of their strategy then you’d be scratching your head a bit.

But it’s not for me to really speak for other people, but all I’d say is that to use Ross Jones’ logic, if you’re a large fund, a very large fund and you don’t perform, does that mean you de-merge or split up or merge with somebody else. The logic is the same. 

But as long as you’re performing for members, you know that’s how you judge yourself, and you know the market will continue to evolve. But that particular report, Mike, was not correct and I would have loved a phone call. 

Mike Taylor, Super Review: Have you got an urge to merge? 

Danielle Press, chief executive, Equipsuper: As I shift uncomfortably in my seat. Am I dating again? I think for my fund, merging is certainly on the agenda. We’re not in a rush. It’s more around remaining relevant to our members. 

Very small funds will survive if they can create a niche that can service their members and deliver what their members. The very large will survive because they’re very large; my fund sort of sits in the middle. 

I don’t have a natural affinity to any one industry. Yes, I came out of the energy industry, but only half of the members come from energy today.

That fundamentally worries me, particularly under the new Fair Work and the potential new awards system.

That puts actual stress on my business – if we don’t get bigger and we don’t become more relevant in more awards. 

So I think it’s horses for courses. My view is the way we manage money, the way we manage our members and the membership, that we have something that looks like $25 billion is probably scale in today’s dollars for us.

At five we’re subscale, at six we’re subscale, but that’s because of the way we manage money and the way we think about things, it’s not necessarily that that’s the same for everyone. 

Mike Taylor, Super Review: Tom, you’ve got an overarching view of what’s going on out there and some interesting constituents? 

Tom Garcia, chief executive, Australian Institute of Superannuation Trustees (AIST): Yes we do. There’s a lot of variety. One of the interesting things Ross Jones said yesterday was originally they were saying they were getting, I think they started at about 300 [MySuper options], then they went to 250 then they went to 150, now they’re at 120 My Super. 

One of the questions I wanted to ask, but we were out of time, was where did the 180 go?

I think we’re seeing a lot of it in the corporate sector. It seems to be a line in the sand for a lot of corporate funds to say that with these increased trustee duties, with this increased reporting, with the creation of MySuper, with extra SuperStream, do we want to be in the super game? 

I think they’re making the decision to say, “we are going to merge or we’re going to let a master trust of some description or another fund basically run our super”.

So I think that’s where we’re seeing the difference. Because they’re corporates they mightn’t need a MySuper, because they’ll just say – as a tailored fund or whatever it might be – they mightn’t be part of the award system, so they don’t need a MySuper to be part of that. 

So there are some reasons for it, but it’s a significant reduction [in the number of MySuper applications] from what they originally thought – which probably makes APRA happy because they don’t have to process as many.

But I understand that the 35 or the 40 that they’ve received already have been really different. So although everyone thought all these MySuper’s are going to look exactly the same, we’re going have 120, so I don’t think that’s the case. I think there’s a big variety. 

I think APRA originally were scratching their head thinking, “oh wow, they’re all very different”, which I actually think is great. It’s showing innovation from the industry, it’s saying how are we going to differentiate, because that’s going to be one of the key things.

How is the Government going to communicate MySuper to the general public, and then how are the funds going to communicate MySuper because there’s going to be 120 MySuper’s turning up and the general public don’t know what they are yet.

Because they’ve not heard of them, and all of a sudden they’ll says “but I’ve got my own super, what’s this MySuper and why are there 120 of them?” 

That’s going to be a big challenge to funds and that’s about the branding, as I think Danielle said, finding that brand.

And that’s where some of the smaller funds will be able to get some cut-through, because they know their members, they can go and directly almost talk to them, some of these smaller ones.

But they have a value, whether it be around insurance, whether it be around their advice, whether it be around their linkage to their employer or their union.

They will survive I think based on good performance – and if you’ve done long-term bad performance, someone should be asking you what you’re doing.  

Mike Taylor, Super Review: Russell? 

Russell Mason, partner, Deloitte: It’s interesting Tom said 120 MySuper options. Will that confuse members? It will just look like the 120 default options they had yesterday, Tom, just with a new name. I think their confusion is, “why have you changed the name of exactly what I had yesterday”, but that’s part of it. 

I think the other reason there are less applications is there’s been some rationalisation. For instance, of the large retail players we worked with originally, one was going to have 12 MySuper products from its staple; it’s now decided to offer four. 

Some of the master trusts thought they were going to have to have 15, 20 tailored MySuper options; they’ve rationalised that down to a smaller number.

So as Tom correctly said of the corporates, [they] have decided now is the time to move to a master trust or industry fund, to fold into them, and I also think there are a number of funds that are still sitting back saying, “let’s just wait, we’re learning something every week as we get feedback from APRA or from other funds that we talk to around the table, from things they’re asking,” so I think we could still see more applications come in. 

Tom Garcia, AIST: There’ll be more to come.  

Danielle Press, Equipsuper: And for many funds there’s no advantage in being first. There’s not necessarily advantage in having a product 1 July unless part of your strategy is to win some of these corporates that aren’t going to replay – then yes, you want to have MySuper on 1 July. 

If you’re not changing your membership or going out and winning any new business, there’s no advantage to it.

In fact there’s now a disadvantage, because you’ve got to have all your data standards up by 1 July if you’ve got in MySuper; if you don’t you’ve got six months to work it out.  

Peter Smith, head of distribution, group insurance, Metlife: [There was] a definite advantage to be the very first one, and then that went, the very first one named and then apart from that if you were second – don’t worry. 

Russell Mason, Deloitte: But there are a couple of very well organised, very large players who are still sitting back.

They’re organised, they’ve done a lot of their work but they just don’t want to rush in. As you very correctly said, they just see no advantage in being the second or third or fourth.  

Tom Garcia, AIST: That’s right, and there’s also the final tranche of MySuper going in today. There’s two amendments coming from the Government to it.

A lot has changed. So there’s little things for some funds that could make a big difference on just how they’re going to design their MySuper.

So some of these funds have been waiting for this final tranche to say, “okay, well that makes a difference, I can now build that or I can change that”.  

Peter Smith, Metlife: I think you said there was a lot of innovation in there, because they’re all different. I just wonder if they’re different because people are looking at it differently.

In my experience every fund that I’ve spoken to has looked at what they’ve got to do very differently. 

I’m not sure if it’s innovation; they’re reading the requirements very differently, especially from an insurance perspective.

From the insurance perspective, of the seven that we’ve worked with, all seven had looked at it completely differently. 

Tom Garcia, AIST: But I think you know with MySuper, two of the big differentiators will be insurance and advice, and how you offer those and the pricing you offer for those. They’ll be two of the big ways to reconnect or try and connect with that “disengaged” group of people. 

I’m not completely convinced everybody’s completely disengaged with their super, especially after the GFC.

Most people lost a bit of money there; they mightn’t understand it because it’s ridiculously complex and they mightn’t really know how to work it – and that’s where the advice piece comes in, and there’s insurance there.

But I don’t think they all just think “oh, I’ve never heard of super, don’t know what you’re talking about”. 

Russell Mason, Deloitte: And so in a perverse way the GFC was a good thing, because I think it opened a lot of people’s eyes to super, they hadn’t taken an interest until perhaps they got the statement that said you’ve gone backwards this year.  

Danielle Press, Equipsuper: Or they read it in The Herald.  

Brett Himbury, chief executive, Industry Funds Management: It was everywhere. 

Danielle Press, Equipsuper: That’s right, it’s everywhere, as opposed to being in the pages of the Fin Review that the general punter doesn’t read. 

Brett Himbury, Industry Funds Management: To your earlier comment Mike, I think it’s encouraging that the regulator is continuing to ensure that the dialogue is around net returns rather than costs, so maybe that’s a first principle. But I’d just like to ensure that that is the focus. 

I think Fin Review actually started out with costs and then moved to net returns, but now you want to see the whole industry continuing to focus on that net returns. 

The second thing is the evidence is a bit mixed in terms of the extent to which size has actually delivered a superior outcome. 

There’s some great smaller funds that have been fantastic in terms of member engagement and certainly their returns.

I won’t name names because that would be unfair, but you know you have a look at the tables and the guys that seem to be consistently up the top are arguably at the smaller end rather than the top end. 

You’ve got to be careful because some of the top ends are very good clients of ours and our contribution to their performance has been outstanding, but the focus needs to be on net returns as opposed to costs.

And the focus needs to be on that – not necessarily size, because there doesn’t seem to be a whole lot of compelling evidence that size makes a huge amount of difference.