A wave of consolidation is set to sweep the superannuation industry, spurred on by the prudential regulator, which is ramping up the pressure on trustees to merge funds.
The Productivity Commission has further added to this pressure by quantifying the benefits of consolidation to the sector. The PC recently estimated that if the 50 highest-cost funds joined forces with the 10 lowest-cost funds, it would generate savings of at least $1.8 billion.
“Most funds are now in merger discussions of some sort and in many cases it will be for the first time,” Mills Oakley financial services partner Mark Bland says.
Bland will speak on this topic at the 2019 Conference of Major Superannuation Funds, to be held March 13-15 on the Gold Coast.
The lawyer will help make up a panel of experts who will take funds through the important steps of merger talks, outlining the relevant considerations across all aspects of deal-making – from due diligence through to amalgamating trustee boards.
A rundown of the key points includes: Initial due diligence on potential merger partners to ensure a good fit, including benefit design, risks, governance and culture; setting a framework for due diligence negotiations and implementation under a Memorandum of Understanding (MoU) and guidance on the nuts and bolts of implementation of mergers.
The panel discussion comes just as the final report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has suggested that proposed new APRA powers could address derailed super fund mergers.
“Fund trustees considering a potential merger need to be well-equipped to work through the complex process of determining if a tie-up is in their members’ best interests,” Bland said. “Trustees need to focus on having an effective process in engaging in talks and deal activity, starting with the self-assessment that they are actually merger ready.”
Bland noted that the final report from the royal commission included a criticism of the conduct of trustees in two case studies: potential mergers between Energy Super and Equip Super, and Catholic Super and the Australian Catholic Superannuation and Retirement Fund.
Both mergers fell apart over the issue of who would sit on the boards and who could nominate board directors.
“The commissioner noted that, in both cases, the trustees considered the proposed merger to be desirable and in the best interests of members but [both failed to proceed] because of a dispute about the board composition of the merged entity,” he noted.
The commissioner observed that the conduct of Energy Super and Catholic Super suggests that “the trustees may have lost sight of their fundamental obligation to act in the best interests of members”.
Bland says one of the critical issues – culture and governance – is highlighted by those two failed mergers.
“While trustees will be reflecting on merger strategies, it is important for them to keep in mind that they must conduct their merger talks efficiently and effectively and consistent with their legal obligations – especially those trustees who have not gone down this road before.”