The $70 billion construction industry super fund, Cbus, is looking at more mergers as part of its goal to more than double its assets to $150 billion by 2025.
Cbus chief executive, Justin Arter, said the fund was talking to “a few” more funds following its merger last year with Media Super and the announcement in December of plans to merge with the troubled NSW energy industry super fund, EISS Super.
“We are always talking to a number of groups (about mergers),” he said.
But he added Cbus was not aiming to “get big” for its own sake.
Destination fund for workers who build and maintain Australia
“We are seeking to be the destination fund for workers in the industries that build and maintain Australia such as the energy, construction, building, mining and transport sectors,” he said. “These are the roles that keep Australia going, that’s the fund we want to be.”
The goal of becoming a $150 billion fund represents a 50 per cent increase in the fund’s aim a year ago when Arter, who took over as Cbus chief executive in July 2020, told Investment magazine it was aiming to become a $100 billion fund.
“Our thinking, at a broad level, is that $150 billion is the viable number in the medium to longer term to truly be able to accrue economies of scale and pass them back to members in (lower) fees and better performance,” he said.
“We are more determined than when I joined 18 months ago to be part of that very large cohort (of industry super funds).”
Size will matter
Mr Arter said it had become very apparent over the past three or four years that smaller funds would have difficulty competing.
He said Cbus’ strategy of looking to serve workers in the “industries that build and maintain Australia” was part of its goal to focus on those workers who had specific industry and superannuation needs. He said workers in these sectors often needed higher levels of insurance given that many of the jobs were considered more dangerous than white collar jobs.
“We (Cbus) offer certain advantages, not the least of which is a significantly higher insurance offer than any other group,” he said. “We are proud of the fact that we provide TPI (total and permanent disability) insurance for younger workers.”
Issues with stapling
Cbus has been a critic of the Federal Government’s stapling legislation which aims to keep workers attached for life to the first super fund they joined.
While agreeing with the move to remove the situation where workers ended up with several super funds over their career, Arter said stapling, as it was now in practice, meant that workers in the building industry risked not having enough insurance for their more dangerous work as many of these workers were in other super funds before becoming construction workers.
Cbus had called for a “carve out” from the stapling laws for workers in hazardous professions but this was not taken up by the Federal Government in its legislation.
“We have a situation now where people in the construction industry might be in a first joiner fund and not a Cbus fund with TPI,” he said.
Mr Arter said workers in certain sectors also needed more service from their super fund as they needed to have representatives visit them on sites, such as construction sites and energy transmission plants, to discuss their superannuation and insurance needs.
The importance of bricks and mortar
He said Cbus Property was a “key differentiator” for the fund which had contributed to its higher levels of investment performance in recent years. Cbus develops its own property through Cbus Property, as well as investing in other fund managers who have also invested in property.
“Cbus Property’s returns, since it was established in 2006, have been pretty remarkable,” he said.
“It has delivered 15 per cent a year compound, eye-popping numbers relative to the REIT (Real Estate Investment Trust) index.
“It shows you that once you disintermediate fund managers and all the hangers on who want a cut of the cake, the money you can make is remarkable.
“Our members are very strongly associated with Cbus Property. We believe we have been able to directly provide over 100,000 jobs over that time.”
Cbus Property has built many of the office buildings which are headquarters for Australia’s top companies and it has also moved into residential projects such as Newmarket next to the Prince of Wales hospital in Randwick in Sydney’s eastern suburbs.
Arter joined Cbus in 2020 after working as a consultant with ANZ Bank on its ties with industry super funds.
Before that he was working at global fund management giant BlackRock, becoming country head for Australia before moving to London for two and a half years as head of BlackRock’s institutional business for the UK, the Middle East and Africa.
He was chief executive of the Victorian Funds Management Corporation (VFMC) from 2009 to 2012.
Economies of scale
Mr Arter said his experience at BlackRock, the largest funds manager in the world with assets under management of more than $US10 trillion, had given him firsthand experience of the advantages of scale.
“At BlackRock the economies of scale are writ large every day,” he said.
“Your buying power at $150 billion (in assets) is going to mean you can get better prices from fund managers,” he said. “You can also see with Cbus Property and the internalisation of investment (at Cbus), it is remarkable in terms of the fees we can take out of the middle and pass back to members.”
Arter said he expected the wave of consolidation in the super fund industry would continue maintaining mergers were the “way of the world from now on”.
“The pace is going to continue. Consolidation will roll on pretty aggressively over the next two or three years,” he said.
Internalisation and cost savings
Mr Arter said Cbus would continue its process of internalising its investment management as it reduced investment costs.
“We are very keen to keep internalising,” he said. “We now have 37 per cent of our asset management in house [and]… that will push higher over time as we continue to internalise.”
He said internalisation of investment management delivered proven savings for members which had been shown by other big funds such as Australian Super, the largest super fund in Australia, and UniSuper adding that the big Canadian pension funds were also “past masters” of internalisation.
He said Cbus would never manage all its funds inhouse. “That would be saying that we know more about the market than everyone else,” he said.
He said private equity was one sector which was often better done by external managers in areas such as equities, property, and infrastructure “there is still a very big role for us to play”.
Arter said he was pleased that both political parties were not proposing major changes to superannuation in the upcoming Federal election.
“There are strong signals being given out by the shadow minister for superannuation, Stephen Jones, that they want to take the heat out of (the superannuation debate) and for it not to become an election issue [and]… that suits me fine,” he said.
“I believe that the Federal Government and the Ministers have heard our message.
“We have been weighed under with regulatory change coming out of the Hayne Royal Commission (into misconduct in the banking and financial sector) and other things including the retirement income covenant. All this vast administrative change all sounds easy on paper, but it is very logistically challenging for any fund to implement.”
“Our message is ‘please hold off (any more major change) for a year or two to give us time to breathe’. I believe the government has heard that message.”