First State Super and WA Super begin merger talks

The two funds, which both count public-sector workers among their membership, say a merger will lead to stronger returns and lower fees for members.

First State Super and WA Super have signed a memorandum of understanding to begin formal merger talks in the latest sign of consolidation in Australia’s superannuation sector.

The combined funds would have around A$132 billion ($87 billion; €78 billion) in assets under management and the merger would increase First State Super’s size after its merger with VicSuper completes at the end of June 2020.

This would place the fund in second place on a list of Australia’s largest superannuation funds, behind only the A$165 billion AustralianSuper.

In a joint statement, the funds said they shared common values, a similar member base, and “understanding of the value of financial advice”. A merger would allow members of both funds to benefit from stronger returns and reduced fees over time, they added.

First State Super already has a presence in Western Australia through its financial planning arm StatePlus, which it acquired in 2016. That business has around 8,000 members and clients in the state, and a merger would see the fund count more than 60,000 members in WA.

First State Super has developed significant internal infrastructure investment capability and been involved in several large deals in recent years, including the 40-year concession to run Victoria’s land titles business in a A$2.86 billion deal, the purchase of the Snowtown 2 Wind Farm in South Australia alongside Palisade Investment Partners for A$1.1 billion, and an investment in the Sydney Light Rail PPP as a member of the ALTRAC consortium.

WA Super has lower exposure to infrastructure as a smaller fund, but has made commitments to funds managed by First Sentier Investors, Lighthouse Infrastructure Management, Infrastructure Capital Group, among others, according to its 2019 annual report. It also partnered with Impact Investment Group last year to launch the WA Impact Fund, a closed-ended vehicle focused on impact investing in the state whose investment mandate includes energy solutions and solar energy.

First State Super draws most of its member base from public-sector works in health, education and other public services. WA Super is a not-for-profit industry superfund with its roots as a fund for WA local government employees.

WA Super CEO Fabian Ross said: “We recognise in the current superannuation environment that size can make a difference. With size comes scale, which can have a significant impact on our members’ fees, returns and ultimately their long-term retirement savings.

“As such, we have determined that a merger with a like-minded superfund would add value not only to our members, but to Western Australians too, as it would enhance the delivery of financial services and education across WA.”

First State Super CEO Deanne Stewart said the merger would continue in assisting the fund to build size and scale for its members, and added that she expected superannuation fund consolidation to continue.

Due diligence on the merger is due to be completed by the middle of 2020.

VicSuper’s merger with First State Super will complete on 30 June this year, with Stewart continuing as CEO of the combined fund and VicSuper’s current chief executive Michael Dundon becoming deputy chief executive. Neil Cochrane, chair of First State Super, will serve as chair of the combined fund.

Several Australian superfunds completed mergers or entered talks about a merger in 2019. The largest of these would be a tie-up between Queensland funds QSuper and Sunsuper, which would create Australia’s biggest superannuation fund with more than A$180 billion in AUM.

HostPlus and Club Super, and Equip Super and Catholic Super, also completed mergers last year.