Having pulled off a tie-up with the Rio Tinto Staff Superannuation Fund, newly appointed Equip Super boss Nicholas Vamvakas is confident he can lead the industry fund through a period of growth by attracting more merger partners.
Equip Super announced on Monday that Vamvakas, who has been the fund’s acting chief executive since June 2016, has been appointed to the role permanently effective July 1, 2017. The news came as Equip Super also confirmed that a previously announced merger with the Rio Tinto fund had completed due diligence, with the trustees set to combine from July 1, 2017.
Following the deal, Equip Super will have about $14 billion in funds under management on behalf of more than 75,000 members.
A board restructure unveiled as part of the merger makes Equip the first industry fund in the country to voluntarily appoint independent directors to a third of its board seats, as the Turnbull Government pushes for the one-third rule to become mandatory.
The new chief executive, who joined Equip as its chief risk officer in May 2014, has led the fund’s negotiations with Rio Tinto for nearly two years. He was previously involved in negotiations for a planned merger with Queensland-based Energy Super that fell over last year.
Equal thirds governance model
Vamvakas told Investment Magazine that Equip’s plans to move to a governance model with equal numbers of employer-nominated, union-nominated and independent directors had proved a sticking point in negotiations with Energy Super. However, he believes the new model leaves the fund well positioned to attract other partners.
“We have been, and continue to be, talking to a number of funds about the possibility of coming together,” Vamvakas said. “But it can take a long time. The stars really have to align.”
He said Equip was in merger discussions with “a handful” of other potential partners, “the majority” of which are other corporate super funds.
“We’re in ongoing talks with a number of funds and now we have a proven model,” he said. “With the Rio Tinto merger due to close on July 1, people can see we have what it takes to pull them off.”
Equip chair Andrew Fairley also talked up the possibility of more mergers.
“We have established a clear and unique position in the corporate superannuation marketplace that bridges the gap between profit-for-member industry funds and retail master trusts,” Fairley said. “This is a strong signal to other major corporate funds that we are a superannuation provider with which they can confidently do business, whether by merging into Equip, or by participating in the fund’s extended public offer structure, which provides shared trusteeship and flexible options for investment management and member administration.”
First with extended public offer structures
Equip is the first super fund to be granted an extension on its licence by the Australian Prudential Regulation Authority that will allow it to do deals under an extended public offer structure. What this means is that another superannuation trustee could merge into Equip, while still maintaining a separate corporate board and brand identity.
Vamvakas believes the extended public offer structure will appeal to niche industry funds.
“Some of the smaller industry funds we are talking to want to be able to maintain their relationship with their members, but can see how, under the extended public offer structure with us, they could achieve better economies of scale.”
This is not Rio Tinto’s arrangement; it has opted for a traditional successor fund transfer.
Equip has been granted permission from the regulator to continue running the Rio Tinto fund as a separate entity under a second MySuper licence for an undetermined period of time, until it can harmonise the underlying managers and investments.
Vamvakas said he did not have any specific target in mind in terms of the total funds under management he would like Equip to achieve via mergers.
“We’ve had a lot of conversations about what the ‘right’ number might be in terms of scale…but I’m not hellbent on getting to a particular number,” he said. “But scale helps reduce costs and I am hellbent on us targeting lower fees for members.”
Equip will drop its headline fees from 93 basis points to 85 basis points for all members, from October 1, 2017.
“I think from $15 billion or so [funds under management] we’ll get some good outcomes, and then at some point, maybe around $50 billion, you start having to consider potential diseconomies of scale,” Vamvakas said.