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Lessons from a $5 billion fund in the world of ‘bigger is better’


Life isn’t always easy at the small end of town, but the $5 billion legalsuper is kicking against APRA’s orthodoxy that bigger is nearly always better.

“It’s hard not to notice this incredible fixation in our industry that you’ve got to be big to be here in the future,” says Andrew Proebstl, CEO of legalsuper.  “We’ve been watching and listening to all of that commentary, but we believe that – as a smaller fund – we can provide an alternative.”

Legalsuper’s FUM sits around $5 billion, with 40,000 members. The whole legal industry is around 140,000 strong, giving legalsuper “considerable scope to grow in its target market”. But Proebstl says scale is not just a “numeric thing that says you’ve got to be over APRA’s magic number.” He believes it’s more about the outcomes you deliver to those members, and that the fund has exactly the scale it needs to achieve its objectives.

“We’re not trying to be all things to all people, like an AustralianSuper. We just want to be a fantastic fund for people in the legal community.”

And legalsuper can now capture more interesting investment opportunities that are either off-limits to the big funds due to capacity constraints or which have been dropped in favour of in-sourcing.

“Because many of the big funds are in-sourcing their investment capability, third-party fund managers are seeing a bit of a shift,” Proebstl said. “Their association with those big funds is changing, sometimes reducing. The smaller funds like us become more important and relevant to a fund manager who wants to have a diversified client base.”

“In recent times a major fund has withdrawn money from a manager and effectively – not intentionally – destroyed the viability of that business.”

That’s changed the interaction legalsuper and other small funds have with their external managers. Proebstl is now seeing a trend where managers are more open to establishing a “true partnership” – not just a mandate – with value add through investment and customer research capabilities.

Its small size also hasn’t stopped legalsuper from pursuing private market strategies; venture capital often comes easier to a small fund given the quantum of money involved. In 2021 it invested in Artesian’s Female Leaders VC Fund alongside Hostplus (Statewide Super recently made a similar investment through Apostle Funds Management) on the strength of the investment proposition and its meaning to members: about 75 per cent of legalsuper’s members are women.

Legalsuper is ahead of the Your Future Your Super test, and has achieved strong performance through the recent spate of volatility. One can never be complacent about the test – you’re only as good as your last bet – but while Proebstl echoes concerns about funds resorting to benchmark hugging to pass, he feels “that was there even before the performance test, in a way.”

“If you invested differently to the peer group, you might end up underperforming or outperforming the peer group. The benchmark has been formalized by the regulator. It’s in the thinking of the investment committee when it considers new investment opportunities, but it doesn’t cramp creativity or curiosity about different investment opportunities.”

The fund isn’t considering a merger, but has criteria for what a good partner would look like based on returns, fees, insurance, and service. Proebstl believes the fund’s high balance members make it somewhat more attractive than some of its peers – a couple of thousand members hold a quarter of its assets – but that the appetite for “bus stop” mergers with smaller funds is slowing anyway. Mega funds don’t need another $5 billion FUM when they have annual cashflows of $20 billion, and the whole process takes up more time and money than it’s worth.

“A few years ago, the minute any fund said they were merging there’d be people all over them,” Proebstl says. “But I think they’re more careful and cautious now.”

Proebstl says every organisation is frustrated by lack of resources – a dynamic heightened when that organisation is smaller than its peers – but believes that legalsuper’s small size makes it more commercial, and “gives it greater discipline in how it operates and spends money.”

Legalsuper’s engagement with its member base – and that base’s engagement with it – “tends to be higher”. They’re generally more financially literate, and earning higher incomes, and expect the same level of engagement from their fund that they would give their own clients. During the recent changes to insurance provisions for young members with low balances legalsuper negotiated with its insurer for its members to have a one-off opportunity to keep their coverage; more than 50 per cent opted to keep it. From what Proebstl has heard, that was “the highest level of active decision making around that change”.

Proebstl continues to meet some members personally, and questions whether the size of the fund is a real driver of member satisfaction or whether it comes back to the daily experience they have with their fund.

“I think quality is what rises to the surface,” Proebstl says. “And it manifests itself in a range of different ways in a range of different sized organisations, and the way you go about doing what you do in the future is going to be more important.”

“Big funds, small funds, medium funds are all struggling with the change and the people issues and the need to become. There was once a view that superannuation was like a cottage industry, and there’s no way we can have that now.”

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