Cbus has partially sold its stake in Frontier Advisors to First Super following the asset consultant’s move to lift out the investment team of State Super and establish what it calls an “independent chief investment officer” business.

“We accepted an offer for the partial sale of our holding in Frontier Advisors,” a Cbus spokesperson said in response to a request for comment. “We remain a shareholder and a client of Frontier Advisors.”

First Super has increased its holding from seven per cent to around 23 per cent, roughly matching the holdings of AustralianSuper, HESTA and now State Super. First Super CEO Bill Watson told Investment Magazine that, owing to the fund’s small size, it stood to benefit significantly from any potential growth in Frontier’s business as a result of the new offering.

“For us as a smaller fund, any uplift in the valuation from [the State Super team] coming in has a materially bigger impact for us than it does for the large funds, which is why we’re interested in it,” Watson says.

“Looking forward, larger funds aren’t going to need the same full service that a small fund like us needs. But there will still be smaller funds that need full service offerings. The market for investment advice and investment strategy is changing, with family offices, high net worth and endowments.”

Watson points to First Super’s holding in asset manager IFM Investors as an example of a similar deal.

“A number of years ago, [AustralianSuper] held 26-27 per cent of Industry Super Holdings, which owns IFM. They got that through a whole lot of fund mergers, but because of Australian securities law they had to get below 20 per cent,” Watson said.

“We used that as an opportunity to up our shareholding from one per cent to five per cent in Industry Super Holdings. Our view was that, on a look through basis, IFM was just a fundamentally great financial services business, and it’s returned to us a compound of about 18 per cent.”

Watson says that, under CEO Andrew Polson, Frontier has repositioned itself to meet changing client needs and won business in new markets that has put it on a strong trajectory, but that First Super would consider providing further growth capital if needed.

“If there’s a need for additional capital we’ll assess it at the time, but we’re committed to seeing the business grow, so if it makes sense if we’re interested… The basis on which this transaction has been done is that there’s going to be pretty substantial growth because of the new offering.”

Frontier’s lift-out of State Super’s investment team, announced in October, will allow it to build an outsourced investment offering aimed at sections of the superannuation and wealth market that are unable to easily access custody or merger partners and which might become stranded as a result.

Chief executive Andrew Polson said the deal would help Frontier “make more of the market here” and disrupt established implemented consulting businesses.

“It’s still an advice-led independent service. But where the client chooses not to operate their entire investment spectrum in house, we can support them,” Polson told Investment Magazine in October.

“We think that’s a customer centric way of doing it… We want to disrupt the product and implemented consulting business out there, which we don’t believe really produces portfolios that are designed for those clients, and we see those examples all the time.

“What we see from a lot of OCIO solutions is that they have house product as a part of what they execute. ICIO is an advice-led proposition that’s supplemented with our investment capabilities.”