Allan Stewart and Michael O’Connor may be on either side of the employer/union divide but when it comes to issues of superannuation, they are as one. The two are co-chairs of the First Super industry fund, with Stewart the employer representative and O’Connor, who is also national secretary of the Construction, Mining, Forestry and Energy Union (CFMEU), from the union side.
It is an arrangement that precedes the formation of First Super in 2008. Back then, they shared the chair at the Timber Industry Super Scheme, one of three funds – along with the Furniture Industry Retirement Superannuation Trust (FIRST) and the Pulp and Paper Workers’ Superannuation Fund (PPWSF) – which merged to form the larger First Super.
“For us, we believe that the co-chair arrangement works much better as a governance control,” says Stewart. “It provides a much more robust system between management and the board. Because we believe that we need chairs and board members who are dedicated to the industries the membership comes from, the governance is directly related to the link which created us. Many of us have been in our industries for 40 years, so when we go to the sites we know the employers and the members and even their families really well.”
Today, First Super is a $1.8-billion fund with around 72,000 members – 50 per cent of whom are active contributors – and 4000 contributing employers. There are five different investment options but 95 per cent of the membership – and 87 per cent of funds under management – is in the default fund, the balanced option.
In addition to a co-chair arrangement, the other feature of First Super’s governance is the tradition for the one independent director to chair the audit, compliance, remuneration and nomination committees.
O’Connor says that while he wouldn’t recommend this arrangement as the solution for every fund, it has worked well for First Super. “For us it has delivered value, some independence and also accountability,” he says. “It suits us and has given us a governance regime and a structure which the membership can understand and trust.
“Of course there’s no one perfect model or one-size-fits-all and you need to pick one which one suits your board, and we do continually review our structure and ask ourselves if it’s working, and if we have the right things in place – not just the structure but the personalities – to make sure we are on top of what is happening in the industry super world at the time.”
Not just account numbers
While it’s an open-offer super fund, First Super stays very close to its roots in the union movement and the industries that came together to form the fund. As a result, O’Connor says the fund reflects the attributes of its membership.
“We’ve got our sleeves rolled up, we’re in there working hard doing an honest day’s work for our members,” he says. “As far as my role is concerned, when I go to a work site and the returns aren’t good, the membership let me know – I can assure you.”
O’Connor says that with First Super there are only three degrees of separation. “Somebody knows somebody who knows a director, so it’s very personal,” he says. “These are real people we are dealing with all the time – they are not just account numbers.”
This sense of shared purpose, he says, was very much behind the fund’s recent decision to exit its $7-million investment in News Corporation due to concerns about the multinational media company’s governance.
First Super, along with a number of other funds mobilised by the Australian Council of Superannuation Investors (ACSI), supported a motion to split the chief executive and chairman roles held by Rupert Murdoch. The News Corp chief used the voting power of his shares to defeat the motion, and as a direct consequence First Super has become the first fund to “vote with its feet” and exit the company.
“It wasn’t just our blue collar members supporting this,” says O’Connor. “Our employer representatives did too. They have either run their own businesses or been involved management and they have very strong opinions on what responsible employers should or shouldn’t do. So we have a common set of values in our fund, and I think our members expect us to be quite aggressive about protecting interests, and I don’t think they expect us to be passive about it at all.”
Size is no barrier
First Super was also a prime mover among funds in applying for a MySuper product, with the application lodged early on January 2, the first day applications opened.
“As a low-cost fund for working people, we completely support MySuper and it just sends a good signal to our membership for us to be in there really early with an application,” says O’Connor.
“The product itself is pretty much indistinguishable from our existing default fund, but accreditation and having that MySuper boxed ticked early are really important to us.”
It also plays to a recurring theme at First Super: size is no barrier. “It’s certainly been a challenging process, but First Super has shown once again that small funds are just as capable as larger ones of meeting enhanced compliance requirements in a short time frame,” says Stewart.
Other initiatives that belie First Super’s relatively small size were early moves into low-cost financial advice, allocated pensions and business and personal loans. All this has been accomplished by a fund that has only four full-time employees and no chief investment officer.
Assets at First
Chief executive Graeme Russell – soon to take the CEO job at Media Super – has played a major role on the investment committee, which is advised by Frontier Advisors, with major mandates to Industry Funds Management, property investor ISPT and fund manager Allan Gray, formerly Orbis Investment Management. “We really like the collaborative investment vehicles such as IFM and ISPT,” O’Connor says. “For us, they are excellent vehicles to invest in and we also wholeheartedly support the basic concept of collaborative investment with other industry funds, because it is low-cost, accountable to us, and aligned with our values.
“The other relationships, such as Frontier and Allan Gray, we are also very happy with – we’ve been able to work with them and reach an understanding which we think has delivered some good results.”
The target return for the balanced default fund is CPI plus 3.5 per cent over a rolling five-year period, and over the last five years the fund has delivered 2 per cent growth. One-year performance is significantly better – at 6.7 per cent – while the 10-year performance is 5 per cent.
“I think we have fared reasonably well in the tough market,” says O’Connor. “It reflects our membership, but we have been more defensive in recent years – we used to be 70-per-cent growth and 30-percent defensive but now we are at 60:40. As we’ve done that we’ve gone into some different asset classes, diversifying into credit, for example.”
In the balanced portfolio, target allocations are 24 per cent for Australian equities, 18 per cent international equities while – reflecting the more defensive nature of the fund – 28 per cent is in fixed interest and 10 per cent in property.
“We try and explain to people that there are other options in the fund and they can mix and match if they want to, but in reality there is very little uptake – some members like to be more engaged but the majority of our members take the view that its our job to look after their money, so they like to put it right back on us,” explains O’Connor.
Accountability and motivation
This theme of accountability is one reason behind First Super’s wariness of further mergers. Both O’Connor and Stewart take the view that the 2008 merger brought together complimentary industry groups and delivered a fund which was small enough to be connected to its membership, and big enough to gain some modest economies of scale.
“You’d never say never about another merger because it’s all about the members’ interests, but we think we’ve got it pretty much right at the moment,” says O’Connor. “Our people are battlers. They were the ones out fighting the fires over Christmas and New Year. If that can’t motivate you as a trustee to do the right thing for their retirement savings, then nothing will.”