Mergers on the go: if funds were stocks it would be a bubble

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by Greg Bright

The news that Statewide Super exited a three-way merger with Tasplan and WA Super and Tasplan immediately announced talks with MTAA Super, followed by Hostplus disclosing it was talking to Club Super, are just part of the big and blurry picture. How about this for a rumour: REST Super and Sunsuper?

The REST Super and Sunsuper merger rumour is not as silly as it sounds. For starters, the two are understood to have had discussions about 10 years ago, for reasons that are different from today’s regulatory-driven environment. And there was also close collaboration between the two, as well as with the former Superannuation Trust of Australia (now AustralianSuper, following its merger with the Australian Retirement Fund).

Sunsuper, REST and STA ran some combined direct member campaigns around 2005 and shared research.

The joint communications campaign was known as ‘Education Key’ and the PR agency which ran it, called CommuniK, was run by Linda Elkins, who went on to join Russell Investments and then, more recently, become an executive general manager in charge of platforms at Colonial First State. She had to represent Colonial at the Royal Commission. The three fund chief executives who oversaw the program were Neil Cochrane, then chief executive at REST, Mark Delaney at STA and Don Luke at Sunsuper. ‘Education Key’ fell by the wayside a year or two after STA merged with ARF to become AustralianSuper.

In 2005, though, the prime driver for co-operation and possible amalgamation was about geographical or sectoral reach as much as scale efficiencies. For Sunsuper, for instance, its membership base was concentrated in Queensland and perceived to be underutilising the fund’s capabilities, particularly in administration, which could be extended nationally. REST, on the other hand, always had the disadvantage of, at the time, having the largest membership base in the country, but also one with among the lowest average account balances. In the 1990s, before a fully developed internet, including emails, REST’s biggest single annual cost was its postal bill.

Now, the big driver is regulation. It’s not really about scale. At the Chant West annual awards this year, for instance, Ian Fryer, who was presenting an award to both VicSuper and First State Super, said their proposed merger was not about scale, because they both had it – certainly the larger First State Super did. It was about providing better services to members, he said.

The introduction, effective July 1, of the $6,000 minimum rule, whereby accounts deemed ‘inactive’ and the balance is less than $6,000 (formerly $1,000) will be sent to the Australian Tax Office for administration with no more fund fees, is going to have a big impact on the industry. An interesting fact is that roughly half of the new entrants to the super system each year – mainly teenagers entering the workforce through full or part-time employment – end up with either REST (think casual retail industry jobs) or Hostplus (think casual café and bar jobs). Those two funds, along with others, are about to lose a big chunk of their membership base, and therefore a big chunk of admin revenue.

Another interesting aspect of the new environment, whereby APRA is urging fund mergers without having provided proper (statistically relevant) evidence to the industry at large about their benefits to members, is that we now have discussions between funds which on the surface have nothing in common.

Tasplan, for instance, is a state-wide $9 billion fund with almost all members based in Tasmania. With its formerly proposed merger with South Australia’s Statewide and Western Australia’s WA Super, the diverse memberships of each, separated only by geography, made sense to amalgamate if possible. Scale benefits may make sense in that situation.

But with MTAA, a $13 billion fund, it’s a different story. MTAA grew out of what became a controversial relationship between the super fund and its main sponsor, the Motor Trades Association of Australia. The fund’s members are, mainly, motor vehicle sales and support industry people. The association’s main members are car sales companies. The problem there was a big question-mark over who was supporting who between the association and the fund. This was resolved some years ago with a clearer separation of the two. The point with respect to a Tasplan merger is: ‘Why MTAA?’

If Sunsuper ends up merging with REST, resulting in another mega fund of more than, $120 billion in assets, depending on if and when it happens (REST had $57 billion as at June 30 and Sunsuper had $66 billion as at May 31), APRA needs to do a lot of explaining about its active participation in the industry. Regulators should regulate the law, not dictate policy. They can advise policy makers but are ill-equipped to do anything other than oversee the implementation of such policy. And, let’s face it, if you put ASIC into the conversation, the regulators have shown themselves to be not very good in the oversight bit either.

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