Kinetic Super is the latest small superannuation fund that Sunsuper has successfully wooed as a merger partner.
On Wednesday, April 12, 2017, Sunsuper and Kinetic Super announced their plans to merge, forming a $45 billion fund. If things run smoothly, the deal should be finalised before the end of the calendar year.
In a joint statement, the chairs of Sunsuper and Kinetic Super revealed they have signed “heads of agreement”, giving “in principal support” to a merger between the two funds.
At present, Sunsuper has roughly $42 billion in funds under management, compared with Kinetic Super’s $3 billion.
The merged entity would have more than $45 billion in funds under management, 1.3 million members, and 100,000 contributing employers. The two parties said they would embark on a “comprehensive due diligence process” over the next two to five months.
“Assuming that goes to plan, in the next six to nine months, the merger will be signed, sealed and delivered,” Kinetic Super chair Frank Gullone told Investment Magazine.
While the two funds are yet to work through the details of the merger, it seems most likely that the Kinetic brand would be subsumed into the larger Sunsuper via a mechanism known as a successor fund transfer.
Mergers key to Sunsuper’s ambitions
Last year, Sunsuper chief executive Scott Hartley revealed ambitions to grow the Queensland-based industry fund into “one of the big six” players in the market. Hartley explained at the time that Sunsuper would pursue mergers with smaller funds looking for a stronger partner as a key plank of that growth strategy.
The latest news with Kinetic Super follows a merger deal struck by Sunsuper in August 2016 to take over the Reserve Bank of Australia Officers’ Superannuation Fund, a $1.25 billion corporate super fund for the central bank’s employees.
As at June 30, 2016, the date of the latest available official statistics, Sunsuper was the 10th-largest super fund in the country, as measured by funds under management. The tie-up with Kinetic would probably bump it into ninth spot.
It is understood Sunsuper is actively pursuing mergers with other small and medium-sized industry funds.
Australian Prudential Regulation Authority deputy chair Helen Rowell has been vocal about the need for “sub scale” funds that are not well placed to deliver value in the future to look for merger partners to achieve economies of scale for their members. Rowell has made it clear in numerous speeches and memos that while there are a number of small to medium-sized funds that have sustainable business models, the majority of those funds the regulator has identified as struggling to meet the scale test are smaller funds reporting negative cash flows.
Kinetic Super changed leadership in November 2016, when former chief executive Andrew Barnett stepped down after just eight months in the role, citing ill health. Katherine Kaspar, formerly a member representative director of the fund, has held the chief executive role since then. Kaspar is a financial services lawyer who has advised some of Australia’s largest trustee companies, including NAB, AXA, Colonial and UBS.
Kinetic Super was established in 1992, the same year compulsory super was introduced, as a default fund for the recruitment industry. In recent years, it has gone public offer and rebranded in a bid to broaden its appeal.
Gullone said there were a number of similarities between Kinetic Super and Sunsuper that made the funds compatible merger partners.
Similar member demographics are a prime example. About half of both funds’ members are under 35 years old. Both funds also serve as default funds for employers from a diverse range of industries. In addition, the two organisations share a technology-savvy approach to communicating with their stakeholders.
Gullone said a shared track record of strong investment returns was also an important factor in choosing Sunsuper as a merger partner.
“Investment returns have been in the top quartile for both funds and we have similar ethos in the active and passive parts of our portfolios,” he said. “Getting rid of the duplication means we can deliver [those returns and member services] in a low-cost environment and extract more economies of scale.”
Sunsuper chair Ben Swan said another important commonality was that both funds took a “commercially competitive” approach to building their membership, rather than being overly reliant on default flows through the industrial awards system.
Neither Sunsuper nor Kinetic Super have been “handed members on a plate”, Swan said. “So that brings with it a value set of strong sales and marketing capability, a focus on the customer and a respect for competitors.”
Swan said he expected the tie-up with Kinetic Super to bring people who were technologically savvy and could make a valuable contribution to Sunsuper’s ongoing efforts to improve its digital capabilities.
“We admire Kinetic’s capabilities in inspiring and engaging members,” he said. “It’s a really impressive organisation and we’ve got a lot to learn from them.”