Troubled EISS to merge with Cbus

The $67bn construction industry superfund Cbus is to merge with the $6.4bn troubled NSW energy industry super fund EISS Super, following an expenses scandal at the latter.

A Cbus promotional logo. Cbus has an avowed strategy to grow the fund to $150bn, becoming one of the megafunds of the superannuation sector.

The $67bn construction industry superfund Cbus is to merge with the $6.4bn troubled NSW energy industry super fund EISS Super, which was ordered to merge by the Australian Prudential Regulation Authority following an expenses scandal.

The two funds announced that they had reached a memorandum of understanding about a merger on Friday with plans for it to be completed next year.

EISS, which manages the superannuation of some 20,000 members mainly in the energy sector, has been under pressure to find a merger partner following a directive by APRA issued in November this year for it to link up with a “larger, better performing fund” by June next year.

This follows the news that it was one of the funds which failed the first APRA performance test in August this year.

APRA had separately launched an investigation in May into the fund looking at questionable expenses including its sponsorship deals.

Allegations that the fund had misspent members money on questionable sponsorship deals, overseas trips and staff parties saw the sudden resignation in September of chief executive Alex Hutchinson, followed by chair Warren Mundy and senior director Michael Roche.

The fund has maintained that all sponsorship deals were compliant with the law at the time and has not signed any new deals since the introduction of stricter laws on super fund spending which came into effect in July.

In November APRA amended EISS’ licence conditions, ordering the fund to implement better expenditure processes and to stop sponsorship payments “and other expenditure not in the members’ interests.”

In a statement issued at the time the regulator warned that “further action may follow (as a result of its investigation into EISS’s spending) depending on what the rest of the investigation uncovers.”

EISS’ merger announcement with Cbus follows the collapse of its talks with TWUSuper earlier this year following the revelations of its spending issues.

Cbus has an avowed strategy to grow the fund to $150bn, becoming one of the megafunds of the superannuation sector.

Cbus chief executive Justin Arter said the merger would “further strengthen Cbus’ position as a leading industry fund.”

He said Cbus had had a “connection and affinity with the electrical industry for decades.”

“We have a strong and growing membership of 36,000 members in the electrical trades and strong relationship with industry leaders like the Electrical Trades Union, the Master Electricians and the National Electrical and Communications Association,” he said.

“By joining together with EISS Super we will be able to deliver even more for members in the electrical sector by harnessing economies of scale.”

EISS Super chairman Peter Tighe said Cbus had put forward a “comprehensive proposal” as part of a tender process to find the most suitable merger partner.

He said partnering with Cbus would “ensure our members’ interests continue to be protected in the long term.”

“Cbus’ commitment to providing a shared future for our members, including those invested in our defined benefit products, was an important part of our decision.”

“Cbus’ track record of strong investment performance, coupled with its commitment to member service and existing connection to the energy industry, will help enhance the retirement outcomes of EISS Super members,” he said.

He said the merger would provide members of both funds with access to “greater economies of scale and investment opportunities” which would provide “positive long term outcomes for members.”

Cbus has returned on average 9.25 per cent per annum over the last 37 years.