Optimising scale benefits for super funds

Merging with VicSuper has made certain allocations difficult, but has ultimately been outweighed by the cost reductions, according to Aware Super.

Speaking at the Parliamentary inquiry on common ownership and capital concentration, the superannuation fund disagreed with chair, Tim Wilson, there were negative effects from merging.

The fund, formerly known as First State Super, merged with VicSuper in July 2020 to create a super fund of $125 billion. It later announced it would be merging with Victorian Independent Schools Superannuation Fund (VISSF) at the end of 2021 which would bring a further $900 million to the fund.

Asked by Wilson if there had been negatives to the mergers, chief executive, Deanne Stewart, said VicSuper members saw an immediate 20% reduction in administration fees while all members had seen a 10% member in retirement fees.

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Chief investment officer, Damian Graham, said: “There is significant upside to mergers, we have been able to reduce fees and invest in global opportunities directly and enhance our service. You have to make sure you get the scale benefit.

“It is harder to invest in small caps though so we have had to change the way we allocate to that but we feel the merger benefits outweigh that.

“As you grow, so does the amount of money you have to deploy so it can become difficult in that sense and governance can be hard if you are investing in small companies.”

Aware Super worked with around 100 different fund managers, around half of them in the unlisted assets space. In Australian equities, around 15% was internally-managed and 85% was external managers. Some 20% of its assets were in passive funds with the largest company being State Street.