More superannuation fund tie-ups under joint-venture trusteeships are being discussed, with recent announcements including Equip Super/Catholic Super as well as the latest Cbus/Media Super proposed deals being watched closely by fund executives, those party to these discussions have described.
The idea for funds to retain their respective brands and identities but find efficiencies by agreeing to consolidate certain parts of the trustee, administration and investment operation functions has been around for some time, even though tie-ups of this nature have not proliferated.
Now that the prudential regulator and policy makers are stepping up calls for more consolidation among super funds, these shared services tie ups are likely to be brought back to the negotiating table, deal makers and fund executives believe.
“There are more funds looking at that collaborative model approach,” said David Coogan, PwC’s partner, superannuation services, who has a long history working on superannuation fund mergers.
Coogan pointed to the deal Equip Super and Catholic Super announced late last year to create a $26 billion fund as an example of one style of trustee joint venture agreement. He added that more of these kinds of shared services deals are likely to emerge.
“There is a lot of talk among funds, particularly those of similar size, discussing ways they can share back office, administrations and different parts of the trustee role as well as consolidating the investment function but still retaining the identity of the fund,” Coogan said.
The Equip/Catholic Super model resulted in the two funds merging their boards while the proposed Cbus/Media Super deal involves no board change with the latter brand and members rolling into the larger fund’s umbrella.
While Coogan declined to comment on specific deals, sources who claimed knowledge of discussions separately said the $5.9 billion Media Super had been exploring shared serves agreements with funds of a similar size (in the less than $10 billion category) before news of the much larger ($54 billion) Cbus tie-up came about.
“Funds have a lot of history and members are attached to those funds so the theory is they want to bring the members along, they feel more comfortable if their new home has some resemblance to the old fund through the sub brand,” Coogan described.
Different strokes for different funds
Graeme Russell, who was CEO of the soon-to-be-merged Media Super up until April, has done a lot of work on the kinds of collaborative and shared services models super funds are currently entertaining.
Russell described the above mentioned deal announcements as examples of a “federation” model whereby a number of funds “federate” by combining their investments, administration, risk management and compliance within a single fund, while maintaining separate brands with their own industry.
He described a more collaborative “shared services model” with a number of funds retaining their separate legal structure and licences, but sharing a range of services to achieve better outcomes at lower cost.
Russell said he believed the thesis for the shared services model would be strongest among the smaller and medium-sized funds where multiple funds could come together within a collective.
“There are funds with obvious partners, such as local government funds, building and construction funds and hospitality funds, but there are other funds, like Media Super, that don’t have obvious partners,” Russell described.
“I think fund executives have been watching what’s happening with Equip and Catholic super and now Cbus/Media Super to see where that model goes,” he said.