LGS plots an intrepid plan for growth

Nour Azhar

By

06/02/2018

New Local Government Super boss David Smith is not shying away from pursuing growth, even in a contracting market amid a royal commission.

Former Zurich Australia boss Smith, who was appointed to his role at LGS in September 2017, says the fund has developed a long-term strategic plan to increase its funds under management from $11 billion to $15 billion by 2021.

The default fund for NSW local government fund employees has held a public offer licence since March 1, 2009, but until now has not focused on attracting members from outside its core market.

That is set to change under Smith, with a new growth strategy that includes improving its products and services to attract a broader membership-base; however, he acknowledges that LGS is unlikely to achieve its goals “organically”, especially in light of the recent council amalgamations in NSW.

“The landscape for all funds is different and is changing, and one of the things that we are really focused on is building our future stakes to achieve that sort of growth target,” Smith says.

The merger of a number of NSW councils followed the release of a report by the Independent Pricing and Regulatory Tribunal (IPART) in 2015 that found about 60 per cent of NSW’s councils were not fit to continue operating in their current form. The findings prompted the NSW Government to reduce the number of councils and attempt to save $2 billion over 20 years.

Smith said he is open to considering opportunistic mergers for the fund, “if it makes sense” for members.

“LGS will always consider non-organic opportunities, but they are hard, risky and complex, and may work from a funds-under-management perspective but not from non-investment MER [management expense ratio] stance,” he says.

LGS celebrated its 20th anniversary in 2017. Smith says the fund’s longevity has been due to its “rock-solid governance and strong investment and risk-management culture” that has contributed to the fund projecting an image as a pre-eminent fund, which is necessary to attract new members.

He acknowledges the fund must continue innovating and investing to withstand any future regulatory and legislative changes, hence LGS has begun investing in its internal digital processes and in educating its younger members about the importance of planning for retirement early.

“One example is the introduction of an interactive member statement, a web-enabled tool that gives members the capability to check their super independently, rather than having to go through an adviser or our contact centre,” Smith says.

He expects the superannuation industry to undergo major changes in the next two years, not only due to internal pressures but also due to the upcoming Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“The royal commission is going to be quite extensive and I think the recommendations will change the supervisory powers of regulators and that would be a big game changer across the industry,” Smith says.

The sector is already under pressure to change, with the government and Australian Prudential Regulation Authority (APRA) both wanting to see more independent board members and greater consolidation across the industry, particularly between small to medium-sized funds.

“I think consolidation in the industry…doesn’t necessarily mean bigger funds under management are a good thing for members; it has to make sense for members to deliver the right benefits for all concerned,” Smith says.

Local Government Super is a finalist for the 2018 Conexus Financial Superannuation Awards in the category Medium Fund of the Year (for funds with between $5 billion to $10 billion in FUM).

About the awards

The Conexus Financial Superannuation Awards recognise excellence in the industry and aim to encourage super funds to raise the bar in all aspects of their operations. The focus of the awards is to honour funds that offer products and services that will ultimately lead to better retirement outcome for members.

While there are many other awards nights on the industry calendar, the Conexus Financial Superannuation Awards are unique in that they are not aligned to a research or ratings house, and do not charge funds to participate. Actuarial and consulting firm Rice Warner assist with quantitative analysis.

The judging panel comprises CalSTRS chief investment officer Chris Ailman, Fund Executives Association Ltd chief executive Joanna Davison, CHOICE chief executive Alan Kirkland, Financial Services Council chief executive Sally Loane, Rice Warner chief executive Michael Rice, and former minister for financial services and superannuation, the Hon. Bernie Ripoll.

“There’s no shortage of commentary or opinions on super fund performance but the strength of this process is the focus on data, which removes a lot of the subjectivity,” CHOICE’s Kirkland says. “At the same time, the growing debate about the importance of effective governance has forced us to bring in some qualitative assessment of factors like this, which can’t be reduced to numbers.”

Australian Prudential Regulation Authority deputy chair Helen Rowell is a special adviser to the judging committee, which remains the only truly independent awards panel in the sector.

“APRA views sound governance practices as fundamental to the delivery of value for money outcomes for members,” Rowell says. “I was therefore very pleased to see the steps taken by the judging panel this year to enhance the approach to assessing governance practices and give it more weight in determining the winners in various categories.”

Rowell says APRA encourages all trustees to continue to improve their practices and the outcomes delivered for their members.

“Industry awards, such as the Conexus Awards, are one means for helping the industry to do this by identifying better practices in key areas,” she says.

The 2018 Conexus Financial Superannuation Awards are produced with thanks to platinum sponsor AIA Australia and event partner, FEAL. All the winners will be announced at a special black-tie event on March 8 at the Ivy Ballroom, Sydney. Tickets are now available. Visit www.conexussuperawards.com.au or contact Emma Brodie via [email protected] or +61 2 9227 5708.

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