It is abundantly clear that political pressure and pressure from the regulators, the Australian Prudential Regulatory Authority (APRA) and the Australian Securities and Investments Commission (ASIC), is being exerted on regulated superannuation funds to consolidate. And the market is consolidating at a fairly rapid pace joining funds which previously could be considered “strange bedfellows”. The industry benchmark for a medium-sized fund is generally thought to be around $20 billion funds under management (FUM). Some industry professionals have speculated that within 10 years there could be as few as 30 or 40 megafunds regulated by APRA.
So why merge and what makes a good merger great?
Reduction in costs
Super funds have many costs and the larger the funds are, the more members there are to share the costs pushing down member fees. Significant costs for super funds include administration/call centres, custodian fees, building and equipment, investment manager fees, staff salaries, annual levies for APRA and ASIC and legal fees. A large membership base gives a fund more bargaining power when negotiating contracts such as insurance contracts and investment management contracts.
NGS Super and Australian Catholic Super (ACS) have announced a planned merger which will create a fund of approximately $21 billion FUM held on trust for approximately 200,000 members. It was described by one writer in the financial press as a “marriage made in heaven” because of the similar membership of teachers and support staff in independent and Catholic schools and the community sector across Australia. The synergies between the two funds are strong as both funds are strongly represented in the non-government education sector and the community sector across Australia. NGS Super’s Chair, Dick Shearman, stated: “Our members’ interests are at the core of this merger, which represents the continued growth and improved ability of our fund to secure the financial futures of all our members”.
Australian Catholic Super Chair, David Hutton, indicated that ACS considered how the interests of its members could be strengthened and better serviced through a larger and like-minded education industry fund.
A Memorandum of Understanding has been signed and the process of due diligence has begun. Currently ACS has approximately 85,000 members with $9 billion under management; NGS Super has a membership of 120,000 with $12 billion under management.
Fund culture can be an impediment to a successful merger, but in this case both funds line up well because of the similar nature of the memberships. Both are not-for-profit and member-centric industry funds. A truly national independent schools and community sector fund will be well placed for future growth, better services and lower costs.