Australian Pension Mergers Gather Pace With A$25 Billion Deal

(Bloomberg) -- Two Australian pension funds are joining forces in a further sign of consolidation in the A$2.65 trillion ($1.87 trillion) industry.

Equipsuper and Catholic Super will merge by December 2020, sharing the same board, investment teams and back office support but keeping their own distinctive brands under a memorandum of understanding signed Tuesday. The deal will form a more than A$25 billion fund managing the retirement savings of about 150,000 members, Equipsuper Chairman Andrew Fairley said in an interview in Melbourne.

Consolidation within Australia's pension industry is gathering pace amid increased scrutiny of under-performing funds and growing pressure to cut fees and boost returns. A government-commissioned review earlier this year found the superannuation system, which invests the mandatory retirement savings of Australians, was beset by inefficiencies and called for more mergers.

KPMG LLP sees the number of superannuation funds halving in five years as low-balance inactive accounts are closed.

The funds are merging “because they see real benefits for members,” rather than responding to any regulatory pressure, Fairley said. The deal will cut as much as A$10 million in costs a year, he said.

Nurses, Teachers

Equipsuper invests retirement savings for energy, resources and infrastructure workers and has about A$15 billion under management for 72,000 members. Founded by staff of the State Electricity Commission of Victoria in 1931, the fund returned an annualized 10.2 percent in the three years to Feb. 28, the sixth-best performer in Australia, according to research firm Lonsec Group.

Established in 1971 initially to look after the pensions of staff in Catholic schools, Catholic Super invests the retirement savings of more than 75,000 workers across health and education. It manages A$9.7 billion and its balanced fund returned an annualized 8.2 percent in the five years to March 31, according to its website.

The tie up, with the two brands retained, is unusual as mergers in Australia's superannuation industry typically see the smaller fund subsumed, as with Sunsuper Pty's merger with AustSafe Super that completed last month.

“We wanted a place in the future landscape that maintained our identity,” Catholic Super Chairman Danny Casey said in the same interview. “We see this as a perfect pathway for maintaining our identity and connection with our heritage, but to also achieve those benefits of scale.”

The combined fund will pursue further mergers and is expected to grow to A$50 billion by 2025, giving it the scale needed to compete in the industry, Fairley said.

“If you are A$7 billion or A$8 billion in 2025, you're nowhere,” he said.

To contact the reporter on this story: Matthew Burgess in Sydney at mburgess46@bloomberg.net

To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, Peter Vercoe

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