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.
Media Super/Cbus merger delayed
The merger between Media Super and Cbus has been delayed until the first half of next year due to several factors demonstrating the complexity of these transactions.
In its first communication on the merger with its members since the December 2020 announcement, Media Super sent a note to them last week (September 1) advising them the successor fund transfer (SFT) deed had been signed and the negotiations had moved to the ‘transition planning’ stage.
A joint press statement from the two funds followed that day. Neither statement referred to the original merger date target of “late 2021”, nor that a new target in the first half of next year had been set.
The reasons for the delay are not uncommon given the current spate of consolidation among super funds and activism by APRA with respect to the implementation of a controversial performance test and encouragement of smaller funds to merge. In fact, the word is that bottlenecks at APRA represent one of the contributors to the Media/Cbus merger delay.
Under the SFT, Cbus has undertaken to retain the Media Super brand to communicate with members in the fund’s core industries of print, media, entertainment and arts. A Cbus spokesperson confirmed that the fund was also planning for a joint ‘Advisory Committee’ with “the stated aim that it will be providing advice and oversight on the Media Super brand, member experience and employer experience”.
Asked about investments, Kristian Fok, Cbus CIO, outlined the benefits for his fund’s new members. He said: “We consider that the merger will deliver a range of benefits for Media Super. Cbus has been a very strong performer over the long-term and has also driven down investment costs significantly over recent years.
“Cbus has significant scale compared to smaller funds and has a well-experienced and extensive internal capability with a significant component of assets now managed in-house. Cbus also benefits from the expertise of Cbus Property which is a leading developer in the Australian market and has delivered an exceptional track record over many years.
“Cbus has an extensive approach to responsible investing including climate change risk management and the incorporation of ESG considerations in investment decision making.”
Fok confirmed that Cbus would launch new investment options to coincide with the merger, which would start to be rolled out initially for existing members later this year.
“We have approval for internal testing in the first half of this financial year with a view to launch in FY22,” he said. The options will include: a low-cost index option, ‘Growth Plus’ (which will sit between the existing ‘Growth’ and ‘High Growth’ options), Australian shares, overseas shares, property and ‘diversified fixed interest’.
“This will meaningfully expand the existing product suite and provide a good breadth of investment option choices for members,” Fok said.
In fund mergers, completion date targets are not usually revealed because several external parties will usually be involved. For instance, Cbus not only has to fit in with the regulator’s schedule, it has to co-ordinate also with its administrator, Link Group (AAS), and custodian, J.P. Morgan.
Media Super has had consistently solid performance for much of the past seven-eight years despite outsourcing most of the investment process. Last year wasn’t so good, though, with the Media Super ‘MySuper’ default option returning 16.82 per cent for the 12 months to June, versus the average of 18.0 per cent in the Chant West universe. Cbus returned 19.34 per cent.
Media Super uses Mercer as its administrator – and also an investment manager – and BNP Paribas Securities Services as custodian. The custodian’s transfer won’t be a problem because Media Super has no private assets under management. The fund closed its infrastructure option, which was only listed infrastructure anyway, to save costs.
Administration is not so straightforward. In this case it is made slightly more complicated because Cbus uses a form of crediting rate system to even out the numbers while Media uses unit prices.
Cbus also needs to keep an eye on the impact of APRA’s implementation of YFYS, which is likely to make the provision of unlisted options more difficult. For instance, Cbus is looking at ways to introduce a new infrastructure option, but if that proceeds it is unlikely to be prior to the merger’s completion.
Cbus is taking the opportunity to upgrade its whole investment option platform to accommodate the ability to allow members to redeem from all options on any day, rather than during certain windows. This will make it easier for the fund to take on other merger partners down the track.
In the joint press release, Susan Heaney, Media Super chair, who runs a privately owned printing business in Queensland, said: “In an environment where the complexities of regulatory change, investment opportunities and member demand for digital and advisory services are growing, it is becoming increasingly difficult for smaller superannuation funds to remain cost-competitive and provide members with more choice and opportunity to grow their retirement savings.
“By belonging to a much larger fund, Media Super members will gain investment opportunities at a lower cost and benefit from a portfolio of products and services that will help improve their retirement outcomes. “Our members have much in common with Cbus members in terms of the nature of their work. Many are self-employed, others work on fixed-term contracts or in casual employment. Like the construction sector, their workplaces are often changing and can be disrupted.
“By keeping the Media Super brand, our members can be confident that they will still have a voice within the larger fund, and that our focus and support for those employed in the print, media, entertainment and arts sectors will be maintained.”
Steve Bracks, the outgoing Cbus chair, said: “Cbus has an impressive track record, returning for members 9.25 per cent on average each year for the last 37 years, “Since 2017, Cbus has reduced our investment fees by $400 million, demonstrating the value of scale to members’ bottom line.
“Together Cbus and Media Super can deliver more for members, delivering the tailored, industry-specific products members need with greater scale and efficiencies.”
As previously announced, another Labor politician, Wayne Swan, a former Federal Treasurer and current national president of the party, will replace Bracks as chair next January. Bracks, a former Victorian premier, is to take up the role of Australian Consular-General in New York.
The Media Super note to members last week promised: “We will continue to provide you with updates as this work progresses and as the merger date draws closer, we’ll make sure you have all the information you need to ensure a smooth and easy transition for Media Super members.”
Well, that would be nice.
