Powered by MOMENTUM MEDIA
investor daily logo

Super fund CEOs warn against pitfalls of mergers

  •  
  •  
4 minute read

The CEOs of two major super funds have discussed the trend of consolidation in the industry, including both the pros and cons that mergers can deliver.

Aware Super chief executive officer Deanne Stewart has warned that super funds are at risk of increasing their costs and creating a worse experience for members in their pursuit of mergers.

Speaking at a panel session at this week’s AFR Super & Wealth Summit, Ms Stewart said that scale benefits, rather than size, should be front of mind when it comes to mergers.

“If you’re just getting big for big’s sake and you’re not driving scale benefits, then why are you doing it, right? So for me, the scale benefits are fantastic if you get the merger right and really drive it, but you’ve really got to be deliberate about three things,” she said.

The first of the three key merger considerations identified by Ms Stewart is whether the super fund is actually driving their down costs.

“For us, for example, with the mergers that we’ve undertaken, we’ve actually seen a significant reduction both in our admin but particularly in our investment costs,” she said.

“Now, scale has enabled us to internalise some of our investments and actually really bring the price down for our members.”

Aware, which has 1.1 million members, was formed from the merger of First State Super and VicSuper in 2020. The $160 billion fund also merged with WA Super in 2020 and the Victorian Independent Schools Superannuation Fund in 2021.

The second merger consideration highlighted by Ms Stewart is whether funds are giving some of the scale benefits back to their members. She said that the only reason that Aware has been able to embark on a technology transformation is because of its scale.

“Our active digital users have gone from something under 40 per cent to now over 80 per cent, because they can actually do all of their transactions online automatically,” Ms Stewart noted.

Additionally, a focus on getting rid of complexity should also be key consideration in super fund mergers, according to Ms Stewart.

“Otherwise, mergers can actually add cost and actually create a worse experience for your members and then you go, to what end? Actually it’s better being a smaller fund that has really high service,” she suggested.

“I think you’ve really got to be good at getting rid of legacy, get rid of complexity, and actually be very deliberate about that, otherwise you won’t get those scale benefits.”

The CEO of CareSuper, Michael Dundon, agreed that the scale argument is “very, very important”. He noted that CareSuper and Spirit Super have entered into a binding agreement to merge, which is expected to be completed by the end of next year.

“Our business case is predicated on some really significant scale benefits and also other opportunities to enhance the member experience, with moving onto an internal administration platform, on opportunities to do different investment strategies, to broaden and take greater share of investment opportunities that come along,” he said.

“There’s some real positive opportunities there.”

When pursuing a merger, Mr Dundon argued that funds need to ensure that they are measuring, tracking, and delivering the expected benefits.

“Quite often what happens is, the world changes a bit or the strategic view of the merged company moves a bit and so business case benefits take a back seat, and so you often don’t deliver what needs to be delivered,” he stated.

Furthermore, Mr Dundon also agreed with Ms Stewart’s suggestion that funds must focus on getting rid of complexity in their mergers.

“Complexity drives enormous costs, so you do have to be fairly single-minded about that and make some really big calls, in some cases, in terms of things that fund A cherished and loved and wanted to see perpetuate versus a more pragmatic approach to what’s the best outcome for members,” he added.

The merger between CareSuper and Spirit Super is expected to create a combined fund with more than 500,000 members and almost $50 billion in funds under management.