In this Q&A with Investment Magazine, Sunsuper chair, Andrew Fraser, discusses industry consolidation, Protect Your Super reforms, ESG and the search for a new chief executive.
Q | What is the most important conversation you’ll have around the board table this year?
A | We are in the midst of a CEO transition after a successful 5-year tenure by our incumbent—Scott Hartley—that’s the most important debate and decision in any board in any time frame.
Q | The super industry is facing a raft of changes. Does that mean boards will look for a different skill set in the chief executive?
A | I think the skill set of successful CEOs will have to include two main themes for success in the next decade or so. Firstly, the ability to compete organically where choice and competition increase, so strong competencies in CX and UX, particularly in a digital environment will be key. Secondly, a purposeful and aligned leadership style which can succeed in a heavily regulated operating environment. Those two areas – defined along a set of hard and soft skills I think will be key.
Q | What will the landscape look like in five years? If the nature of superannuation is overwhelmingly a scale game and the landscape increasingly defined by strongest competition, what is scale these days?
A | I don’t think you can attach an arbitrary number to scale. Sufficient scale in particular markets will be different. It’s not a simple case of big is best and small is bad. But I do think there will be significant consolidation of many smaller funds; not all but many. We need to have policy settings in place that permit new entrants, and innovators. As an industry we shouldn’t aspire to the typical Australian oligopolistic market structure. That won’t be good for the members we serve. And if we want that dynamic in the industry, then we need to see smaller scale start-up entrants navigate their place. It will ultimately, overwhelmingly be a scale game in my view, but organisations don’t commence at scale, they need to build. As the chair of an at-scale incumbent, I want to see that capacity in the marketplace.
Q | Super funds have been in the spotlight with the release of the Productivity Commission and Hayne Inquiry’s recent reports. More recently there has a demand for more transparency and clarity as a consequence of massive cash flows moving to industry funds. How do you think about governance now given this?
A | In many respects, we view governance the same way as we did before the inquiries of last year. Prior to this, we were already a large fund, with strong positive flows – the fastest growing in the Top 10. Our success in the last 5 years in winning tenders in the corporate market has been linked to the trust and open transparency we have demonstrated to the market—all of which pre-dates the reviews of last year. The law didn’t change, the duty is a high bar, and has been for a long time. What has changed is the external focus, and is a driving focus across the industry. For Sunsuper, we have re-focused on our risk management and risk culture. For a fund that has been growing so significantly you need to keep a firm grasp on your internal systems and capability to ensure that you mature and iterate internally in-sync with the top-line growth.
Q | What are the most pressing governance issues for super funds (note the members outcome requirements coming in from January) and the ‘fit for purpose’?
A | The most pressing issues around governance will vary for different parts of superannuation funds. The recent PYS reforms are very good for members, and I think for the industry. One consequence of their passage will be to put pressure on funds which have a prevalence, or over-reliance, on low account balance members and inactive members. The cost base is not changing, but the revenue base for many funds materially changed on 1 July. That has the focus of boards across the industry.
Given the requirements and expectations of regulators, it will be harder —but not impossible— for smaller funds to meet the expectations and challenges set out within the new prudential requirements. That’s obviously the focus of APRA and it is reasonable. No-one in our industry can or should make the case for abiding under-performance.
Q | What are some practical ways the fund provides transparency to its members, and have you made any changes during your tenure?
A | We go beyond the minimum here, which is worth noting is significant. Funds, regardless of type, are required to provide wide disclosures and information on their public website. During my time we have enhanced our disclosure of our governance documentation – publishing in full our policy framework. Many funds don’t, or only publish headline summaries. We have also recently resolved to hold a member general meeting during this financial year – the new requirements to do that don’t commence until the following financial year. We already hold member and stakeholder events in multiple geographies for example, we did so in Toowoomba last month in conjunction with our board meeting. Avoiding getting trapped in capital cities is a good practice for boards and l schedule a regional board meeting each year.
Q |What is your commitment to ESG and how does this translate in a practical way to your fund?
A | We believe that, all other things being equal, entities that best manage ESG factors are more likely to be financially sustainable in the long-term. Like all investment decision making as a board we set out a framework and delegate to a skilled management team to execute. I think there is a ‘moral panic’ dimension to some of the focus on this aspect of the industry, in the narrative that there is some existential threat to capital allocation in Australia. We are the fastest growing Top 10 fund – and we represent just 2.3% of the superannuation market. Don’t forget that for most funds their holding of Australian equities will be less than 30% of their funds under management– so translate that through to our circumstances and our position is about 0.9% of the value of ASX200. And much of that is passive. I think our economic debate could be informed by the positive potential of patient long-term capital provided by domestically by our system – especially in light of the exigencies of short-termism that plagues our market and our generational lament on importing capital.
Q | The post-retirement phase of a member’s life is increasingly taking centre stage What are Sunsuper’s plans in this space?
A | It is increasingly in focus, and in part that is due to the fact that the industry still has some significant work to do in this area. As the industry matures, and as the population wave moves through to retirement, the industry needs to move beyond the issues of accumulation to the agenda of de-accumulation, or retirement. We are focused in this area, and challenging ourselves to think laterally and creatively. In a tangible, practical move we have halved administration fees for pension members from 1 July – this was a determined effort to deliver for members in this category as other funds have upped fees.
Q | How would you describe your leadership style?
A | Different to when I was 30! I challenge myself not be reflexive – often you need to trust your instincts, but reflecting on those first conclusions, and taking the time to distill a decision always enhances the overall outcome. I think we have a great skill set from wide backgrounds and different perspectives at our board table, and extracting the value from cognitive dissonance is a key dimension of my task in the chair.