When CareSuper and Asset Super sat down to work out their post-merger investments, they quickly found that the two funds together had around 40 managers – and only one of them was in common.
They had a common custodian, in National Australia Bank asset servicing and the same administrator, in AAS, but rationalising and then transitioning the investments was perhaps the most important focus.
“There was a big task to consider the individual managers and how they fitted into each asset class and how they complimented each other, and I think we are still going through those transitions,” says Greg Nolan, pictured right.
“We sat down and looked at every manager and every asset class with JANA, our investment manager, and which ones we would need going forward because we didn’t need them all.
“We wanted to get the best of breed of the investments out of the two funds, so there was a lot of discussion around which managers we would go with.”
There were some differences, too, in the funds. CareSuper had a combined fixed income fund, for example, while Asset had separate funds for domestic and global fixed income. The decision was made to offer the combined global and domestic fund.
CareSuper also had no listed property assets, with a focus on yield and capital gain, while 60 per cent of Asset’s property was in the listed space. Listed property, for CareSuper, was part of its domestic equities allocation, so the listed property managers were let go in the merger.
“All in all, we think the successor-fund options married up very well,” says Julie Lander, CareSuper chief executive. “The transitions were quite smooth, given that it wasn’t always clear at the outset as to which options we would pursue.”
Full details of the transition won’t be known for some time. Greg Nolan says the fund feels unable to disclose details and costs of the transition, including which managers have been terminated, until after the process is complete.
“We are happy to talk after the process, but not before as I think we should pay respect to the managers who are being terminated,” says Nolan. “Also, we do not want the market to know when a large transition is happening.”
On the investment strategy, Nolan says the “whole philosophy” is around protecting returns when markets fall. CareSuper, he says, didn’t get “caught up in the euphoria of the boom of 2008” as a result of its more cautious approach.
“Our whole allocation reflects that philosophy and we won’t be changing it,” he says. “That means that in total we have slightly less in equities than other funds, and we have focused recently on things such as credit, and we have tweaked up property a little bit and allocated to private equity a little bit more, but nothing dramatic. The merger hasn’t really meant any big changes in our asset allocation so far, and I don’t think it will.”
On the issue of internal and external management, Nolan says the fund’s board is “pretty firm” in its intention to maintain an external funds management model. “We have a three-person team inhouse, and while we do some term deposits inhouse, there’s no intention to change things, and we’ll be continuing to use JANA,” he says.
Good for each other
Barely a month on from the completion of the merger, chief executive Julie Lander reflects on the process with some satisfaction. The execution, she said, was a “huge chunk of work” but now that it is done “it seems to have been one of the smoother and less controversial mergers.”
“There were some issues around the government’s rollover legislation and it would have been nice to have some certainty around that, but we did decide to pursue things largely because we wanted the scale, and because we wanted to be prepared for MySuper,” says Lander.
On its merger partner, Lander says Care and Asset Super were “good for each other.”
“We always thought there were quite a lot of synergies,” she says. “There were some similar service providers, so that meant there were fewer things we had to change. And at board level, there was very good energy there and we got some of the important things out of the way very early, which was good.”
One of these was the leadership issue. At 63, Asset Super chief executive John Paul elected to retire, clearing the way for Lander to assume the chief executive role at the merged entity. CareSuper chief investment officer Greg Nolan also assumed the same role post-merger.
“To have agreement on all of those issues was really important,” says Lander.
“I just think everyone was of one mind and we wanted to do it straight away. There were a lot of governance issues and it always going to be good if Asset didn’t have to deal with them separately.”
“It was a big decision for Asset because they were giving up their fund and of course they wanted to be sure that it was in all of their members’ best interests.”
Work in progress
While the merger is technically complete, Lander says that the process is ongoing in a number of areas.
“We don’t see that it’s the end of it at all,” she says. “The investment team is still going through terminating some assets and switching some assets into CareSuper’s name, so there’s still a lot of work happening in investments.
“And we recognise that we need to do a lot of work to engage members and employees, so we are about to do some satisfaction-survey work on how members felt about the experience.”
Landers believes the new CareSuper has the scale to be cost effective, but small enough to continue its strong investment performance. CareSuper’s balanced option returned 8 per cent in the 12 months to August 31 this year, earning it a third ranking in SuperRatings research.
“At $7 billion, I think we are a great size. We’re big enough to have the benefits of scale and small enough to serve our members and their employers well,” she says. “And I think it also gives us the ability to be a bit more nimble in investment terms.
“We’ve produced better returns historically than some of the much bigger funds, so it really is a case of size not being everything.”