Super fund in IT deal to cut admin cost

Brisbane-based LGIAsuper has signed a services partnership with listed Indian group Tech Mahindra.

Kate Farrar, CEO of LGIA Super, at a park outside her office in Brisbane. Picture: Lyndon Mechielsen

Brisbane-based LGIAsuper has signed a services partnership with listed Indian group Tech Mahindra as it executes a plan to cut costs and potentially double funds under management.

LGIAsuper, which began life looking after the retirement savings of Queensland’s local government employees, put out a competitive tender as it targeted a halving in the annual costs of providing fund administration to members from 2021.

Chief executive Kate Farrar said the 10-year managed services agreement with Tech Mahindra was an alternative to a merger with another fund.

“You can take a different way forward, as long as you are very clear and keep fees and costs low,” Ms Farrar said.

“Our strategy is really focused on making the fund as good as it can be in our own environment.”

LGIAsuper manages $12.8 billion across various asset classes and has investments including a stake in the Sunshine Coast airport, a 600ha macadamia farm and a holding in the Tasmanian Gas Pipeline.

It often works closely with infrastructure manager Palisade Investment Partners.

LGIAsuper has more than 80,000 members.

It is taking a different approach to other funds in the $2.8 trillion sector, who are pursuing the consolidation route as compliance and investment performance pressures increase.

Early this month Hostplus revealed merger talks with smaller Queensland-based hospitality industry fund Club Super.

That followed a string of other deals including MTAA Super and Tasplan signing a binding memorandum of understanding to ­investigate a tie-up of the two funds that manage $13bn and $9.5bn ­respectively.

LGIAsuper’s partnership with business process firm Tech Mahindra sees the fund sell its ­platform and the latter provide customised administration services, which still allows the local group to control member ­communication and function­ality.

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Ms Farrar said the agreement met the fund’s objectives of ­reducing costs by $5 million a year and halving the annual cost of ongoing administration services.

“We do acknowledge that there are benefits from scale (in administration),” she added.

But earlier this month one industry participant suggested super funds needed to manage more than $20bn to navigate regulatory reforms and competitive forces in the present climate. Another said the threshold was closer to $40bn.

Ms Farrar noted that LGIA­super wanted to grow its funds under management to no more than $25bn over the next five years, keeping to its mid-sized boutique model.

“We have a unique and pretty successful investment strategy,” she said.

“It’s a very important part of our investment philosophy that we are a mid-sized fund.”

The latest SuperRatings data ranked the LGIAsuper balanced fund option 11th out of 50 funds with returns of 5.2 per cent for last financial year up until May 31.

That puts LGIAsuper in the top quartile of performers over that period, while over 10 years it is a median performer with annual returns of 8.4 per cent.

Superannuation funds are facing merger and cost-cutting pressure as the government prepares to kick off a sweeping review of the nation’s retirement income system.

The industry is dealing with new laws that mandate the consolidation of inactive low-balance super accounts and potential reforms stemming from the Hayne royal commission.

The prudential regulator has also been very active in the sector in recent years, including targeting underperforming or sub-scale funds, and now has stronger powers to take action against trustees of underperforming superannuation funds.

Ms Farrar said LGIAsuper was confident that the Australian Prudential Regulation Authority was “very positive” about the role boutique super funds could play in the sector.

Tech Mahindra has six offices across Australia and has commercial partnerships — spanning areas such as digital, cybersecurity, cloud, data, analytics and business process services — with local companies including Suncorp and Perpetual.

Link Group and Mercer are also providers of super administration services to local funds.

LGIAsuper’s agreement with Tech Mahindra comes into effect in November.

The fund — previously LG­super — was formed in 1965 and became LGIAsuper in 2011 when LGsuper and City Super merged.

In mid-2017 LGIAsuper became open to the public.