Australia's First State Super is merging with VicSuper, a combination that will create a pension fund with A$120 billion (US$83.8 billion) of assets under management and over one million members, the second largest in the country after AustralianSuper.
The merger is "broadly seen as a progressive and proactive step for the two funds, and one that is very aligned with the growing trend of consolidation across the superannuation industry", First State Super and VicSuper say in a statement on July 23.
Their boards have signed a binding agreement, subject to due diligence, following which they expect the merger to be completed by June 30, 2020.
First State Super, Australia’s sixth largest fund, had more than A$90 billion of assets and over 800,000 members as at June 30, 2019. VicSuper had A$21.2 billion of assets and more than 240,000 members at the end of 2018.
First State Super Chief Executive Officer Deanna Stewart will become CEO of the merged fund. It will be chaired by Neil Cochrane, First State Super’s current chairperson.
The statement says VicSuper's CEO Michael Dundon will remain after the merger “to help ensure a smooth transition”.
It did not specify how long Mr. Dundon will stay, or whether he will have an official role. Spokespersons for VicSuper did not immediately respond to questions from Asia Asset Management (AAM).
This is First State Super's second merger in eight years. In 2011, it combined with Health Super to create a A$30 billion fund with more than 770,000 members. Two years ago, it acquired StatePlus, the New South Wales government’s financial planning business, for around A$1 billion.
The new merger isn’t surprising because Australia is "crowded with superannuation funds", according to a fund manager at a foreign asset management firm.
"Some of these funds are not performing, so I expect more consolidation to take place over the next few years," the Kuala Lumpur-based fund manager tells AAM, speaking on condition of anonymity.
He says First State Super and VicSuper may be able to operate more efficiently after they merge.
"Like it or not, size does matter in this business. With the larger scale, the merged entity could offer better services and have access to a wider range of investment opportunities. They may be also able to get better fees from mandates," he says.
The merged fund will initially have one independent chairperson and 14 directors, including four from VicSuper's nominating bodies.
The board size will be reduced to ten directors, including two from VicSuper’s nominating bodies, by June 2022.
Established in 1994, First State Super started off by serving the retirement needs of public sector employees in the state of New South Wales. VicSuper, established in 1994, was originally a public sector fund in the state of Victoria. Today, both funds are open to all Australian residents.
There are now more than 200 superannuation funds in Australia, each with at least four members and A$50 million of assets, according to figures from the Australian Prudential Regulation Authority.
AustralianSuper, the largest fund, had A$150 billion of assets under management at the end of 2018.