Oz Supers lead merger trend

According to the two super funds, the merged entity will be among Australia's top five biggest supers by funds under management. First State Super covers the majority of public-sector employees in New South Wales across sectors including education, healthcare, emergency services and police and penitentiary workers, while Health Super's members from the health and community services sector are primarily residents of Victoria.

Speaking to AVCJ, Michael Dwyer, First State Super chief executive, explained he will keep the same role in the new entity, with Health Super head Chris Clausen as his deputy. He also confirmed that the merger was born out of the latest thinking on the super industry, typified by the Super System Review, conducted by Jeremy Cooper, formerly Deputy Chairman of ASIC, which was submitted to the government in July this year. "Scale is going to be important for superannuation funds," Dwyer said. "A lot of funds for a while have been having a discussion about mergers… We had known each other for some time in the industry, and had identified that we had a lot in common."

Much of the impetus for the merger, Dwyer continued, came from the need to offer better services in an increasingly competitive superannuation industry. Management expense ratio (MER), in particular, is now cited as the key metric for super funds attracting and competing for members in an increasingly tough environment, and the larger the fund, the easier to keep MER low, LP advisors confirm.

Dwyer identified the two funds' lack of geographical overlap and common strategic thinking as important ingredients in the merger chemistry. "We want to provide the best combined services," he told AVCJ. "We had to be in mind of statutory obligations to do the best for our members."

Although both GPs and LPs in Australia have recently warned that a number of supers with relatively new alternatives programs may exit the asset class entirely, the First State/Health Super combination seems unlikely to take that route. Dwyer added both supers' private equity programs would likely form part of the new vehicle, but would be assessed in the same way as the other lines of business. "Both funds have assets in the alternative assets space, but the whole investment area, like the other areas, will be subject to a working group." 

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• Australasia
• LPs