The boards of the two funds and FuturePlus, the investment services provider they jointly own, are scheduled to meet this month, during which the matter will undoubtedly be raised. Sources within LGSS maintained they knew nothing of the merger plans that EISS had discussed with NSW Treasury, which began in mid-2009 shortly after a meeting between the two funds in which the idea of a merger was suggested. The fund would consider merging with EISS if the documents were provided in a fully consultative process, a course of action now favoured by the NSW Treasury.
So far, the LGSS has been provided with a one-page summary of the proposal and a study undertaken by SuperRatings canvassing the cost savings that could be achieved, said to be more than $5 million each year. “The people doing the original report had access to a lot of information within FuturePlus,” a senior LGSS source said, “but without the underlying assumptions, it’s hard to drill into these numbers.” “We can’t see where these numbers came from other than cutting back services to members.” Richard Powis, chief executive officer of EISS and FuturePlus, said the merger plan was driven by the EISS board and motivated by benefits of scale and the opportunity to introduce independent directors to the board of the amalgamated fund, thereby providing diversification beyond union and employer representatives.
He said the board was responsible for decisions about including LGSS in the discussions. John Eisenhuth, chair of EISS, said: “In mid-November we started to think about seeing how LGSS would consider such a thing.” “It’s a bizarre situation,” an LGSS source said, upon reflection that the merger talks proceeded in isolation while both funds shared the same office space at 28 Margaret St in the Sydney CBD. The $5.5 billion LGSS has more independence from FuturePlus than the $2 billion EISS, mainly because it employs a chief investment officer and has aligned parts of its portfolio with sustainability principles.