Statewide Super in merger talks with Hostplus

Statewide Super and larger industry fund Hostplus have confirmed they are in detailed merger talks.

Statewide Super CIO Con Michalakis, left, with CEO Tony D'Alessandro. Picture: Keryn Stevens

Statewide Super and larger industry fund Hostplus have confirmed they are in detailed merger talks and working towards a deal, as marriages and takeovers in the $3.1 trillion superannuation sector gather pace.

A joint statement late on Monday confirmed an online report by The Australian that revealed the negotiations. The statement said the funds intended to “shortly sign” an exclusive heads of agreement to pursue a merger, which would create a combined $77bn fund.

Sources said Adelaide-based Statewide, which oversees $10.8bn in funds under management, had been investigating how to best partner with a larger fund as the prudential regulator presses for more mergers.

They noted part of the rationale for Statewide cosying up to Hostplus was a structure offered by the latter that allows the merging party to retain front-end ­systems and branding, but centralises the management of investment portfolios.

Monday’s statement said that, after the heads of agreement was signed, a two-way due diligence process would occur to “determine if a merger is in the best interests” of Hostplus and Statewide’s respective members.

Hostplus – which manages $66bn and has historically ­focused on the hospitality, tourism, recreation and sports sectors – has been seeking to broaden its member base and beef up funds under management. Last week, it secured a deal to merge with the $3bn Queensland-based Intrust Super.

On the Statewide merger talks, Hostplus chief executive David Elia said: “Our early discussions have highlighted a fundamentally strong alignment between our two funds, from our similar industry fund ethos and beliefs, to our dedication and passion for our members, which provides an excellent foundation for establishing a successful merger.

“We are confident that our collective members, contributing employers and associated communities would strongly endorse our merger and immediately benefit from the resulting economies of scale.”

Statewide’s website says it has 142,000 members and services about 24,000 employers. The industry fund had earlier been involved in a proposed three-way marriage between it, WA Super and Tasplan, but those talks collapsed.

Statewide chief executive Tony D’Alessandro on Monday said merger negotiations would result in his fund seeking to “preserve local jobs” in South Australia and the Northern Territory, even as it worked towards defining the benefits of a deal with preferred partner Hostplus.

“The engagement and discussions between the funds to date have been most encouraging and I’m very optimistic that the common ground, strengths and synergies we’ve already identified suggest that pursuing a merger of our funds will realise and deliver significant benefits for both funds’ members,” Mr D’Alessandro said.

“This includes ensuring Statewide Super retains its unwavering commitment to South Australia and the Northern Territory.”

For the 11 months ended May 31, the Hostplus Shares Plus growth fund returned 23 per cent. Performance data on the Statewide website shows its Active Balanced option posted returns of almost 15 per cent over the same period.

Statewide’s MySuper growth option returned 16.4 per cent and its high-growth fund option 20.6 per cent.

However, both Hostplus and Statewide have separately faced regulatory heat in the past two years. The corporate regulator in March started Federal Court action against Statewide, alleging the super fund made false or misleading representations about insurance cover held by trust members.

The merger deliberations are happening against the backdrop of a spate of other funds seeking out partners, particularly at the smaller end of the spectrum. Regulatory pressure has focused on fund performance, fees, governance and a push for scale benefits.

The April marriage of MTAA Super and Tasplan — now known as Spirit Super — has resulted in it managing $23bn, BOC Super this year announced a tie-up with Equipsuper, and last month AustralianSuper and $2.7bn Club Plus announced they would work towards a merger.

At the larger end, Sunsuper and QSuper are combining to create a mega $200bn fund.

The industry is also digesting the federal government’s Your Future, Your Super industry reforms, which include seeing workers stapled or tied to a single fund. That is aimed at removing duplicate accounts across the industry that expose fund members to more fees.

The Australian Prudential Regulation Authority last month questioned whether smaller mergers of superannuation funds were producing a new entity with appropriate governance and sustainable long-term scale.

At the time, APRA’s deputy chair, Helen Rowell, said any fund with less than about $30bn in assets under management was increasingly going to be uncompetitive against so-called mega-funds.

LGIAsuper CEO Kate Farrar last month said fund mergers should deliver notable fee cuts to members, and she expected the new average size for a boutique fund would swell to between $30bn and $50bn.

Brisbane-based LGIAsuper is part of that merger trend and, ­effective from July 1, it will combine with Energy Super.

LGIAsuper also agreed to snap up Suncorp’s wealth business in a transaction expected to complete in the 2022 fiscal year.