Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Members, Northern Trust the winners in Equip/Telstra tie-up
Equip Super and TelstraSuper will merge with an eye to achieving “significant scale benefits” and improving retirement outcomes for its members. The merger, set to complete in 2025, will create a profit-to-member fund with around $60 billion under management and 225,000 members
TelstraSuper began poking around for a merger partner in May following “careful consideration” of its long-term strategy in an environment where size and scale are increasingly important. Equip was the winner in a comprehensive review of potential partners, with both funds talking up their complementary capabilities across retirement solutions, advice and defined benefit investments, as well as their shared corporate super heritage.
“Both funds have a proud history in serving the superannuation needs of a wide range of members including the employees of large companies,” said TelstraSuper chair Anne-Marie O’Loghlin. “Over time we have both grown to support a broad and diverse membership. We are excited about the potential benefits that come from a merger and the opportunity to create a larger fund continuing the focus on providing industry leading superannuation, retirement and financial planning solutions for members.”
Equip has bulked up in recent years. In 2019 it took on the $10 billion Catholic Super in a merger that resulted in Catholic Super operating as a “division” of Equip under its extended public offer (EPO) model, which was designed to help funds achieve economies of scale in admin and investments “without loss of brand identity or control of relationships with members, employers and other stakeholders”. At the time, then Equip chairman Andrew Fairley said the EPO model would be key to reaching $50 billion of FUM by 2025, though the announcement of the TelstraSuper merger does not detail how the merged entity will be structured.
“TelstraSuper is a highly regarded fund that brings complementary capability and the scale required to deliver tangible benefits for members,” said Equip Super chair Michael Cameron. “With similar heritages in corporate superannuation arrangements, shared values, and a common focus on retirement solutions and advice, we are excited by the opportunities this merger presents for Equip Super’s members and employers.”
And with TelstraSuper flagging that the merger would also mean a move to a new custodian following the expiry of its current arrangement with J.P. Morgan, the custody of the merged entity is highly likely to sit with Northern Trust, which Equip moved to in May following NAB Asset Servicing’s (NAS) decision to exit the market. Under the EPO model, Catholic Super also transitioned to Northern Trust from NAS.
Winning the business of a super fund in growth mode is the Holy Grail for the custody banks down under, while those remaining sub-$30 billion funds – which might also be in outflow – are somewhat less attractive when base fees are charged as a percentage of assets under custody and in a market environment where they could be gobbled up at any time by another fund looking to pad its FUM.
