CareSuper chair Terry Wetherall projects a calm demeanour, as befits his role, but sometimes his body language gives him away.
What does he think of Treasurer Josh Frydenberg’s recent failed push to crack down absurdly hard on proxy advisers?
There is a slight pause, perhaps a well concealed sigh, and then this answer:
“That was a piece of legislation looking for a problem.”
He added that “with this Government, at this point in time when they’re going to have to call an election shortly, I’m often astounded at what they do’’.
That’s a nice verb. In the superannuation space, there must be a secret longing to dig a hole and hide in it until the election storm passes. And that’s aside from all the other moving parts in the economy, such as volatile markets, interest rates moving up, consolidation between funds and increasing regulation.
CareSuper is a good example of a middle-sized operation that’s got a fairly wide membership, having started in 1986 as a fund for clerical workers.
“Right now, we are at about $20.8 billion and members are round about 217,000,” he said.
He called CareSuper’s $20 billion operation a “boutique”, adding that total funds under management have just recovered to a level above where they were at the start of the COVID pandemic.
Where’s the sweet spot?
“We believe the sweet spot is round about $30 billion, even though the regulator said about $50 billion,” he said.
“We think $30 billion for us is achievable.”
He noted that being nimble has never been a disadvantage.
“We are active and active management is the way to go at the moment,” he said.
“About five years ago we were at about $15, $16 billion.”
What put the brakes on growth, aside from the market dropping [was] COVID?
‘’We had those two tranches of early release (from super). We weren’t significantly hit but it was a withdrawal and then we’ve had the sweeps from the ATO taking up members with accounts under $6,000,” he said.
“Trying to diminish the big number of accounts out there is something of which we are in favour.”
He was talking about those small accounts that many superannuants had left running for years, often to get cheap insurance.
“On the other side of the coin, post Hayne, industry funds were the beneficiary of a lot of leakage from retail funds, such as AMP,” he said.
“We picked up quite a few new members that way.”
A merger target?
He admitted to getting the occasional approach for a merger.
“That is an option and will remain an option for us, but we believe there is a place in the market for a boutique fund like ours,” he said.
“We’ve set ourselves a number of KPIs and hurdles such that if we fail, we would look to benefit our members and we would go further upstream to a destination fund and have those conversations.”
“There has to be some compatibility with our investment processes,” he warned.
“We are not currently in any discussions.”
Performance
Performance stands up well. The fund’s MySuper option is a balanced fund that has outperformed SuperRatings’ equivalent SR50 option returns to June 31 last year over five, 10, 15 and 20 years.
CareSuper’s main offering, the standard Balanced option, reported annual returns of 9.13 per cent a year over the past 10 years versus 8.28 per cent for median industry funds.
CareSuper’s point of difference?
“Governance is a very important component of CareSuper’s culture,” he pointed out.
“We spend a lot on governance to ensure that we don’t fall outside the bounds or into the concerns of the regulator.”
But he didn’t see the challenges to his fund disappearing.
“In the last 12 to 15 months, superannuation has become so political. And, as a consequence, regulators have become more demanding in terms of the information they are seeking from the super funds.”
Engagement
“Post Hayne, members are becoming more engaged with their accounts using the heatmaps produced by APRA,” he said.
What Wetherall doesn’t like to hear is more talk about allowing savers to withdraw funds early from their super to help with issues like housing.
“It’s part of the scenery of superannuation that demands will continue on funds,” he said, adding that such ploys were never the intention of super.
Best interests
“Is everything in the best financial interests of a fund’s members?” is the covenant now, he noted, which added the word “financial” to the original mantra.
“Super funds were established for retirement.
“It all comes down to the Financial Interest Test. We have to substantiate that we are making wise and considered investments.” `
The future
Fortunately for Wetherall’s fund, a lot of the supposedly controversial elements of legislation have already been taken care of. Take portfolio disclosure, for instance, where the new rules turned out to be a lot simpler than feared when they came out late in 2021.
Many managers dreaded having to disclose commercially sensitive information that would give an advantage to competitors.
The main question turned out to be whether the relevant assets are being “internally” or “externally” managed.
CareSuper’s assets are all externally managed on top of which the new rules allow some illiquid assets to be aggregated in a way that will not disclose exactly what they are.
Just before wrapping up, he revealed an underlying beef.
“I think the thing with Government is to accept that industry super funds are there for their members,” he said.
“In recent days they’ve again been labelled “Union” and that’s an incorrect description.”
Is he expecting any big changes to super if there’s a change of government in May?
“I don’t think so. The political temperature will dial down and that’s good. Industry funds have been overwhelmed responding to questions from the Parliamentary Committee throughout last year,” he said.
