Hostplus, Australia’s top performing superannuation fund, is looking to join forces with Club Super, underlining the retirement industry’s status as the hottest sector for merger activity in recent months.
The two superannuation funds have entered into a Memorandum of Understanding to formally carry out due diligence.
David Elia, chief executive of the $45 billion Hostplus, said the two funds have swung into “full due diligence mode” and “will be in a position to sign a successor fund transfer agreement within the next two months” subject to that process being completed.
Asked about the importance of scale, the Hostplus chief stressed that the super fund is not an asset gatherer. “We don’t pursue growth for the sake of it. We’re a $45 billion fund with the lowest admin fee structure in the market and hopefully, we will continue to deliver great investment outcomes,” he stated. He predicts the fund will reach $50 billion by the end of the year just through a growth in cash flows.
“We have continued to run the fund very efficiently and, as such, we have been able to sustain the administration fee that we have charged our members – of $78 per year – ever since 2004.”
Commercially, he argued, there are economies of scale to be achieved as funds continue to grow but ultimately that growth has to be reflected in the underlying fee structure.
“That highlights our ability to deliver scale benefits by virtue of being able to keep our administration fees flat and also not by introducing a percentage-based administration fee.”
Speaking of the industry trend of bringing assets in house, he said there is no doubt that the move towards internalisation – as funds scale up – makes perfect sense on the cost side of things.
“What is unknown, is whether the internalisation of investments deliver superior outcomes and I don’t think anyone has the answer to that today as the industry is, to some degree, in its infancy in relation to this issue.”
Club Super chair, Sharron Caddie said: “Along with Hostplus, we are keen to explore how a merger of our funds, based on shared values, our all profit to member philosophy and focus and track record in serving the hospitality, clubs and allied sectors, would better serve our members and stakeholders both here in Queensland and nationally”
“Club Super has traditionally operated within the hospitality and tourism segment so with that in mind the board looked at a number of funds with a view of exploring a merger before settling on Hostplus,” Elia noted.
Both funds confirmed that their respective members and employers will be kept informed of the outcomes of the funds’ discussions once the opportunity has been fully explored.
This is second merger to be explored within a week. Last Friday, Tasplan announced that it has entered into a binding MoU with MTAA Super to create a fund worth more than $22 billion.
The merger activity comes just as the prudential regulator is bringing pressure to bear on funds in a bid to ensure members get economies of scale from bigger funds.