AustralianSuper, Statewide exploring merger deals with smaller super funds

Several super funds are exploring merger deals after the Hayne report lit a fire under negotiations.

That nation’s largest superannuation fund, AustralianSuper, and players including Statewide are actively considering enveloping smaller super funds, as regulatory pressures in the $2.8 trillion sector start to bite.

The Australian understands merger discussions in the domestic superannuation industry have ramped up post the landmark Hayne royal commission report.

It recommended a string of reforms including that the super industry implement the Banking Executive Accountability Regime, not charge advice fees to MySuper accounts, that individuals have just one default account and civil penalties be enforced for breaches of director’s covenants.

That is coupled with the federal government’s clampdown on low-balance or zombie accounts, which must now be consolidated under newly passed legislation.

The rising compliance burden has lit a fire under merger negotiations between local super funds.

Sources said several small-to-medium-sized funds had sought out $140 billion behemoth AustralianSuper as a white knight through informal talks, while South Australia headquartered Statewide yesterday confirmed preliminary merger discussions with Perth-based WA Super.

Industry fund Statewide manages more than $8.3 billion, while WA Super’s website says it has 60,000 members and manages more than $3.5bn.

A Statewide spokeswoman confirmed the funds were in “very early exploratory discussions”, while WA Super also confirmed that Statewide was one of the funds it was engaging with for exploratory conversations.

The banking regulator has long called for the dispersed superannuation industry to consider consolidating, especially at the smaller end and for funds that perennially rank poorly on investment returns.

There are about 198 regulated funds and 26.8 million member accounts in Australia.

Industry sources pinpointed Media Super, which manages about $5.5bn, as one candidate that entertained early stage merger discussions with AustralianSuper.

Media Super’s chief Graeme Russell responded by saying the fund wasn’t currently involved in merger talks, as it looked to see though its existing multi-year strategy to win more mandates.

“Media Super is not involved in any discussions at any level regarding any merger,” he said.

AustralianSuper declined to comment.

Commenting on the broader sector, EY national superannuation leader Maree Pallisco said the outcomes of the royal commission would have funds “revisiting their operating structures”.

“It comes down to whether what they are doing is efficient and if they have good performance,” she said. “Boards are really going to need to consider what is our strategy and have we got the right skills.”

Funds looking to merge would have to conduct detailed due diligence and prove to the Australian Prudential Regulation Authority any tie-ups were in members’ best interests, Ms Pallisco added.

“Sometimes merging two funds may not be the right answer.”

Experience has shown that mergers between super funds often prove complex and hit stumbling blocks.

Last year, after protracted negotiations a faith-based merger between Catholic Super Fund and its Sydney-based rival Australian Catholic Superannuation Retirement Fund fell over on concerns about who would lead the combined group.

APRA has, though, made clear it wants superannuation funds of a viable scale that deliver good outcomes to members.

In January, deputy chair Helen Rowell welcomed the Productivity Commission’s final report into superannuation efficiency and competitiveness, saying many of the findings and recommendations aligned closely with APRA’s ongoing focus on ensuring superannuation funds delivered for their members.

“APRA is committed to enhancing the focus of Australia’s superannuation sector on delivering optimum member outcomes. New and enhanced prudential requirements we announced last month included strengthened member outcomes assessment obligations for all superannuation products, and APRA has continued its progress in getting trustees to take action on underperforming funds,” Mrs Rowell said at the time.

She has previously stressed that choppy financial markets, low interest rates and members moving from the accumulation to the retirement phased was hurting many funds.

APRA is continuing to work with several funds that are yet to outline how they will fix their performance woes and navigate the regulatory environment.