The chief executive of the $14 billion Active Super Fund, Phil Stockwell, said there is still a place in the market for “focussed, specialist” medium-sized super funds.
At a time when the Australian Prudential Regulation Authority (APRA) is pushing super funds below $20 billion to seek merger partners, Stockwell said Active Super was successfully carving out a role as a sustainable mid-level fund and not looking to be subsumed.
Originally known as Local Government Super, the fund was rebranded as Active Super in May 2021, paving the way for it to appeal to a broader segment of customers. The Sydney-based fund has some 80,000 members, mostly in the local government sector in New South Wales.
“We believe there is a place for what we call sustainable and focussed players, in the marketplace,” said Stockwell, who has been chief executive of the fund since November 2019.
“We have a member-focussed, organic growth strategy where we are building on existing strengths [and] we have been able to deliver what matters most for investors which is investment performance [as well as] continually working to reduce fees.”
Passing the test
Stockwell says Active Super has passed the first round of the APRA performance test with its My Super product coming out as the best performing fund over seven years for people aged 30 with a balance of $50,000, delivering an annual average return of 9.46 per cent.
He said the fund, which has been an open offer fund since 2009, was looking for new members, but was still “primarily focussed” on employees in the local government sector in New South Wales.
“Continuing to service and support the local government community is core to our strategy,” he said. “We are predominantly focussed on NSW which is our heritage [and] have grown up being the default super fund for the local government sector. When people change jobs and careers and move on from where they started in local government, they can stay with us… so, over time, our base has broadened beyond local government,” he said.
Resisting the urge to merge
Stockwell rejects suggestions that the decline in Active Super’s total account numbers over the past few years is a sign that it needs to merge. He said the decline in accounts follows moves by APRA and the Federal Government to eliminate duplicate accounts.
“There has been a wave of regulatory changes to make the industry more efficient by consolidating accounts and doing the right thing to ensure we don’t have too many member accounts,” he says.
Stockwell says he doesn’t believe a super fund should seek a merger with another fund if the goal is mainly to generate more scale.
“There has been a lot of action in the industry in recent times driven by fund size,” he said. “Getting scale is important- and there are certain benefits which come from that [and] some funds are using mergers to get scale quickly, but we don’t think scale is the sole reason you should entertain a merger.”
Stockwell also said mergers created potential challenges in terms of their execution and the “disruption and uncertainty” amongst members.
“It is important, if you go down the merger path, you do it for the right reasons. A merger can be disruptive and there is no guarantee that you are going to get the best outcomes in the end.”
The advantage of being small
Stockwell says Active Super is looking to use its smaller size to its advantage.
“It gives us an opportunity to invest in some things which are not worth doing for bigger funds,” he said.
Its investment strategy includes having a higher weighting in small cap stocks and. he said, the fund took an active approach to its investing.
“We are not doing anything which is passive or indexed. We use active managers,” he said.
The main exception is a portfolio of buildings in New South Wales which it manages itself.
“It is a very good portfolio of properties which we manage very much for returns but in line with our ESG responsible investing philosophy,” he said. “All our buildings are carbon neutral and use solar and green power and have the highest NABERS energy rating from government agencies.”
Active Super delivered some of its best annual returns in its history in the year to June 30, 2021, reporting a record return of more than 23 per cent over the year for its high growth option. The high growth fund in its accumulation scheme returned 23.69 per cent while its high growth fund in its retirement scheme produced a return of 23.76 per cent. Its account-based pension plan returned 26.96 per cent over the year.
Stockwell said Active Super sees its commitment to ethical and sustainable investment as being a critical part of its offering in a competitive superannuation market, particularly with last year’s introduction of new laws which mean employees are automatically “stapled” to their super fund when they change jobs, unless they specifically opt to make a change to another fund. The fund was one of the first super funds in Australia to rule out investing in tobacco, a move it took 20 years ago. “It was not mainstream back then,” he said. “It is important, in a stapling world, to have a good brand and a competitive proposition,” he said.
It now specifically excludes any investments in gambling, tobacco, weapons manufacturer and “certain investments which are carbon heavy.”
He says one of the biggest risks for companies these days is climate change. “We are very active on that front as well,” he said. “We have committed for the fund to be carbon neutral by 2050.”
“We are doing a lot of modelling and working in the area to ensure we are engaging with the companies that we invest in (on this issue).”
Regulation and change
Stockwell said the superannuation industry in Australia has had to manage “successive waves” of new regulation and change in recent years including from the new APRA performance tests and to the introduction of account stapling-both of which came into force last year.
He said the rebranding of the fund from Local Government Super to Active Super last year was providing an opportunity for the fund to broaden its appeal in a more competitive market and while the waves of new changes and regulations created more work for fund administrators, he believed they were generally, “well intentioned and good for members.”
“They will make the system more efficient, more resilient and more transparent… we have a lot of staff time and energy going into (implementing the changes),” he said. “But, from our perspective, we look to see the opportunity in change.”
“Any change can create potential opportunity for us to be a better fund and strengthen what we do for members, or it may create opportunities for growth.”