Industry superannuation funds Cbus and Media Super have started due diligence on a potential merger to create a fund worth $60 billion.
Currently valued at $5.9 billion, Media Super ran a tender process to find a suitable partner earlier this year and came up with the $54 billion Cbus, after rejecting overtures from $180 billion giant AustralianSuper.
Together, the funds representing the media and construction industries will serve more than 800,000 members.
The move to due diligence gives both parties the opportunity to look closely at the other before they formalise the deal.
If all goes well in that process, the merger is planned to be completed by 2021.
APRA wants mergers
The potential deal comes as regulator APRA (the Australian Prudential and Regulation Authority) puts pressure on smaller funds to merge to boost efficiency and cut fees for members.
Currently, there are 185 pooled superannuation funds. That is down from 279 funds a few years ago, but given they offer 40,000 investment options, in APRA’s eyes there are still too many.
It means “the industry is probably not operating with maximum efficiency,” APRA said in its recent Insights publication.
The regulator said it continues to pressure the trustees of poorly performing funds to merge or exit the industry, unless they are able to materially lift their game.
A report from the Productivity Commission in 2019 highlighted the need for fund efficiency and good investment performance, finding that members in under performing super funds could have their retirement balances reduced by between $375,000 and $500,000 over their working lives.
Both are strong performers
Although Media Super has been a strong performer, earning an average of 7.39 per cent annually in its balanced option over the past 10 years, merging with Cbus will deliver benefits of scale, said Media Super chair Gerard Noonan.
Cbus has returned 8.6 per cent annually in its balanced fund over the past 10 years.
“By increasing our size, we can provide access to a greater range of investment opportunities and provide a better deal through cost savings, potentially reducing the investment fees,” Mr Noonan said.
Cbus is more than a super fund. It is a significant investor and developer in its own right through Cbus Property, a venture started during the early 1990s recession.
The fund has also improved its performance in recent years by bringing investment management in-house rather than paying external managers.
Mr Noonan described Cbus as having “a strong offering with 30 per cent of its investments internalised and ownership of its market-leading developer, Cbus Property”.
“We believe that the merger will also continue to build on our leading responsible investment approach and [give us] a much stronger voice with the companies with which we engage,” Mr Noonan said.
From Cbus’ perspective, the funds have similar cultures despite the significant differences in the industries they serve.
Cbus chairman Steve Bracks said both funds understood the importance of strong connections with members.
“For 35 years our fund has had a strong bond with our members,” Mr Bracks said.
“This affinity with our members has built a strong level of trust in the fund. Media Super has a very similar history and connection with their members. This is an exciting opportunity for both of our funds and I am very pleased to see this proposal progressing.”
Although the merger delivers advantages of scale for Media Super in particular, both funds will “maintain independent brands while merging administration and investment functions,” a Cbus spokesman said.
“There won’t be separate management but Media Super will do its own marketing and workplace engagement,” the spokesman added.
That means both funds will maintain their separate connections with traditional memberships they know and understand well.
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