Equip Super and Catholic Super will join forces in a $26 billion deal ahead of a full merger by 2020 in a further sign of consolidation in the $2.65 trillion superannuation industry.
Under the terms of the deal, the funds, which have a combined membership of 150,000, have signed a memorandum of understanding to establish a joint venture trustee to oversee both entities from October 1.
Subject to due diligence, the two funds expect to begin joint operations by the end of this year after being granted an extended public offer license from the prudential regulator.
The agreement will see the funds consolidate their trustee, administration and investment operations that would provide economies of scale and fee savings, without loss of brand identity or control of relationships with members, employers and other stakeholders.
Equip Super chair, Andrew Fairley said the joint venture would contain costs and improve efficiency, bringing real benefits to members.
The full merger will follow a successive fund transfer which the funds can begin as soon as the deal is signed.
Fairley, who will be the new chair of the merged board, said equivalency will have been established for both super funds by 2020.
“Harmonisation normally takes between 12 and 18 months to achieve as funds do things differently. But the structure of the deal is so innovative that the funds will be able to bring forward those savings from day one,” he said.
“My experience with mergers, which is not inconsiderable, is the longer a deal takes to complete, the less likely it is to be done. So what this is doing [the EPO structure] is bringing forward benefits in 5 months that would otherwise take 15 months to achieve.”
The trustee is expected to be named soon, with completion of the agreement, subject to due diligence, likely by the end of the year.
The merged trustee board will be comprised of 12 members – seven from the existing Equip board and five from Catholic Super. Members and employers will retain their existing representation of one third each of seats on the board.
“The two funds have reach agreement on a best-practice governance model, which includes skills-based selection and appointment of directors and the inclusion of one third independent directors on the future board,” Fairley adds.
Investment for both funds will be undertaken through Equip Super Investments.
Equip Super and Catholic Super will become the first industry funds to combine their operations using the EPO model.
The Equip Super chair says he is surprised that more funds haven’t looked to use this structure but he expects they will as APRA ramps up the pressure on trustees to merge funds.
“Now APRA has the power to be more coercive, we believe there will quite a lot of rationalisations and there will be funds who like our model.”
Catholic Super, Danny Casey, said the joint venture had many benefits for all. “The joint venture is the perfect pathway, bringing our members the benefits of scale while retaining the Catholic Super identity and strong connection with those working in Catholic institutions and communities,” he said.
The merger comes as funds in the superannuation industry seek to improve member outcomes and best interests through the economies of scale consolidation can deliver.
Last year, Equip Super had a strategy to be a $35 billion fund by 2025. The merger with Catholic Super puts the combined entity in the top ten super funds in terms of size.
Since Fairley believes the merged fund will reach that figure organically by that date, he has now upped the target to $50 billion.