Wayne Kayler-Thomson and Neil Cochrane

The chairs of First State Super and VicSuper talk to Investment Magazine about the $120 billion merger underway, industry consolidation and the importance of scale.

| What is the most important conversation you are having right now with a merger underway?

NC: One of the most important things we’ve been discussing is how to best leverage our individual strengths and combined scale, to deliver great value for the members of both funds. As Aristotle taught us, sometimes the whole can be so much greater than the sum of its parts, and that’s certainly ringing true for us as we make our way through due diligence and get a better sense of the future benefits for our members.

WKT: This process has demonstrated that we are two very like-minded funds and our people and workplace cultures are absolutely focussed on our members. There are certainly investment and financial synergies that would be realised but we also have operational capabilities that complement each other. For example, we both believe strongly in the value of advice and the outcomes it can create; VicSuper is leveraging data analytics and insights through a range of distribution channels to better communicate and engage with members whilst First State Super brings significant investment scale. Both our funds have a strong commitment to responsible investment and are doing some market leading work in this area.

| The VicSuper/First State Super merger has changed the way we look at scale. If the nature of superannuation is overwhelmingly a scale game and the landscape increasingly defined by strongest competition, what is scale these days? 

WKT: We both believe that now and in the future, scale is really a ticket to play to provide real value and great outcomes for our members. The benefits are wide ranging. There are the operational efficiencies we can gain through technology, shared services and capabilities, coupled with the benefits that scale can afford us by opening up access to a broader range of investment opportunities and an even greater ability to generate strong, sustainable returns over the long term.

NC: The other area where scale will benefit our members is through innovation in the retirement income and advice space. With more scale we’ll be able to explore different avenues to help us lead the market in both products and services.

| How important is scale? What will the landscape look like in five years?

NC: For our fund and our members, scale is important but no more so than understanding and then meeting the needs of our members. Our members are essential workers in the community: school teachers, nurses, public servants and emergency service workers. We know that generating scale will open the door to improved efficiency, better services and most importantly better financial outcomes for our members.

Ultimately, consumer preference will shape the landscape of the future. Hopefully, the ongoing scrutiny by government, regulators and the media will prompt more Australians to engage with their super, consider their sources of income in the future and make choices now that will benefit them in the years ahead.

WKT: We recognised that if we were to combine our resources, we would pave the way for new market leadership and innovation with our members being the ultimate beneficiaries. Our membership profiles are very similar having a large cohort either already in the retirement phase or in the early stages of planning for retirement. The size of our combined retirement assets could provide opportunities to develop innovative retirement income solutions for retirees that can help our members to achieve better outcomes in retirement and set us apart from other super funds.

The super landscape is going to look very different in five years’ time, as competition will only continue to increase in the super industry. Both funds see it likely to evolve into a small number of very large funds with significant scale with a number of smaller niche funds for specific cohorts. What will be essential for all funds is to have a really differentiated, compelling value proposition for their membership that they’re able to deliver on while also providing competitive net returns and strong governance. Today, we are a very healthy fund with strong member engagement, however we knew that the future landscape was going to require scale to continue to deliver great value for our members and we wanted to be on the front foot ensuring that we were acting in their best interests. I would encourage other directors and management to have the same strategic conversation.

| Mergers are famously tough to complete because of differences in culture, systems and governance. What challenges are you facing?

NC: There’s no doubt that merger discussions are challenging, but we went into these discussions with a shared commitment to look for solutions, not roadblocks. I can’t overstate how important that mindset is because it sets the culture and tone for the way we work through negotiations and the due diligence process.

WKT:  We did expect the merger process to be very demanding on our people, and that has certainly been the case however, as always, they have risen to the challenge.  It has been terrific to see the way our teams have responded and embraced the opportunity to be directly engaged in the due diligence and a prospective integration process. Our early discussions identified cultural and governance alignment, and this facilitated a principles driven process and approach. Both boards have been very focussed on members best interest to guide our teams to identify opportunities and to find solutions to any challenges.

| What turned out to be harder than you thought?

NC: It takes a lot of time and resources to get it right – and while its possibly not harder than we expected – we must meet a high benchmark to demonstrate this merger would be in the best interests of our members. Our teams are doing an incredible job and working very hard to ensure our member services standards are maintained and BAU operation and governance process remain uninterrupted while we also undertake rigorous due diligence investigations. It’s times like these that our Members First culture lifts and motivates our people to go that extra mile. I’m so proud of the work they’re doing and the way they’re delivering for our members. We are focusing on the end goal not the footsteps in getting there.

| There has been 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?

NC: The principles that were emphasised and learnings that were drawn out of the royal commission about transparency and community expectations have definitely been a point of reference for us as we’ve discussed the potential merger and considered the fund we want to be in the future. We spend a lot of time thinking and talking about trust and what that means. For us, trust is earned through our behaviours.

|What were the governance issues that came out of merger discussions? Were there any?

WKT: Early on in our discussions, before we signed the Binding Heads of Agreement, our respective boards agreed that board representation should reflect membership composition. We consulted with our respective nominating entities and stakeholders and they support the approach we are taking. This consultative approach, and communicating early has enabled us to agree an appropriate governance model for the merged fund.

| What are some practical ways the fund provides transparency to its members, and will you make any changes post merger?

NC: We’re striving to achieve better outcomes for our members through this merger, so it makes sense to bring them on the journey with us. Communication is key. We want our members to understand why we believe this will deliver results for them and we want our members to know that they can trust us to look after their long-term interests. Both funds are communicating regularly with our members through every means we have: through our contact centre, our website, reports and statements, through our Financial Planners and workplace education teams and in interviews and news articles. Maintaining this communication rhythm and building engagement post merger is a priority for us.

|What is your commitment to ESG and how does this translate in a practical way to your fund?  

NC: ESG is central to us as responsible owners. We consider the ESG risks and opportunities across our whole fund. We know our members want us to deliver the best possible returns, but they also care about how we deliver those returns. Issues such as governance, climate change, worker safety, modern slavery, all have the potential to impact our investments in the long-term and it is essential we consider these in any investment decisions that we make. This way we not only deliver for our members in terms of returns, we also put their money to work to be a force for good in their community as well.

Our innovative approach was recently recognised at the PRI Awards in Paris, where we won the Best ESG Incorporation Initiative Award for our SIMON Strategy. We have been greatly honoured by this award and we’re pleased to see our absolute commitment to considering ESG issues being acknowledged on a global stage.

It is central to our investment approach and it is a commitment that we share with VicSuper, with both funds also being named in the PRI Leaders Group.

WKT: At VicSuper, we believe a responsible investment approach and strong, sustainable long terms returns go hand in hand. There should be no trade off. It’s been a part of our heritage and is something that we’ve always been known for. Both funds being world leaders in this space is something we take great pride in and we will continue to innovate in the responsible investment space and hold our managers and the companies we invest in accountable through our engagement processes.

VicSuper’s commitment to ESG integration is one of the four pillars of our Responsible Investing framework. ESG integration is a core part of the way we run our fund – we can’t make informed decisions around investing for the long term without it. For us it translates practically around the way we evaluate the environmental, social and governance risks inherent in the investment decisions we make. We’re not paying lip service to this and we’re continually increasing the transparency and measurement around how we responsibly invest our members’ money, engage with the companies we invest in and measure the social impact of our investment portfolio and how it aligns to the global sustainable development goals. We’re doing some really interesting things in the responsible investment area and it has been great to be recognised by the PRI as a global leader.

| The post-retirement phase of a member’s life is increasingly taking centre stage. Where are you in this space? What will the merged entity offer here that improves things?

NC: Both funds believe in the importance of quality financial advice to help our members make the most of their retirement savings. We both have a proven track record in developing market-leading advice solutions and retirement products for members and we believe that the size of our combined retirement assets could provide opportunities to develop innovative retirement income solutions. There’s a great opportunity to lead in this space and we strongly believe that this focus will help our members achieve better outcomes in retirement and set us apart from other super funds.

Q  How would you describe your leadership styles?

NC: Leadership style is a highly individual thing. We are extraordinarily privileged to be able to pay a role in Superannuation and I deeply care about the good we can do, but at the end of the day I know I’m innately collaborative and respectful. I am energised by collaboration because, throughout my career, I’ve seen so many great things created as a result of it.

WKT: My leadership style has been formed by a lifetime of leadership experience in organisations large and small, public and private sectors and in the community. I am a committed believer in values driven leadership, “walking the talk” of the organisations values and providing clarity of vision, strategic direction and organisation purpose. My approach may vary depending on organisation or situation circumstances, but my default style is democratic and collaborative, while being decisive and outcomes focussed.


Neil Cochrane and Wayne Kayler-Thomson will discuss the merger further at Investment Magazine’s Chair Forum held  January 29-31,2020 in Victoria www.chairforum.com.au/






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