In an interview with Super Review, Vision Super chief executive Stephen Rowe has shared his thoughts on industry consolidation activity and the challenges of keeping up with ever-changing regulation.
Rowe took over as CEO in 2013, joining from Super SA, where he was CEO of South Australian public sector scheme for four years. Prior to that, he spent seven years as the CEO of First Super.
The three priorities for Rowe are investment performance, driving fees and costs down and providing a good member service by focusing on its different member cohorts.
At the recent Super Review Super Fund of the Year awards, the fund won in the category of Service Quality and was also a finalist in the categories of MySuper Fund, Retirement Offering and Net Benefit (those funds that achieve the best net benefit outcome for members over the short and long term).
“We are not trying to be everything for everyone, just trying to land a good product at a reasonable price and have a massive focus on returns,” he said.
“We are not trying to be the lowest fee, but we want to be as low as we can be.”
This disciplined focus has been successful as the Vision Super Balanced Growth fund returned 11 per cent in the financial year 2022–23, making it the second best-performing super fund out of the whole industry according to SuperRatings. Over 10 years, it has returned 8.2 per cent per annum.
Speaking at the end of the financial year, it attributed the strong performance to holding little in private equity and property although it admitted it had been a “tougher year than last year”.
While many funds have opted for a large proportion of assets being managed internally, Rowe said Vision currently only manages its cash allocation in-house and pushes hard for cheaper fees with external fund managers.
“We have a simplified investment portfolio with a core of passive funds to keep costs down and then take on concentrated active managers to add alpha. We watch them carefully and that has served us well,” Rowe said.
“If you give money to active managers, but only to a few of them, then you can be cost-conscious and we are relentless on fee negotiations, we never stop.”
A further change coming in is that under the Quality of Advice Review, funds are urged by Minister for Financial Services Stephen Jones to provide financial advice for their members as a way to broaden access. Recent updates in the Delivering Better Financial Outcomes consultation have since outlined how this can be charged.
However, Rowe was all too aware that this could yet change in the future as the consultation progresses through Parliament.
“We provide full financial advice and single issue advice and we are providing multiples more in financial advice than we ever did before and seeing a lot more people through single issue advice,” Rowe said. “But there’s been so many reviews on advice over the years, however, so these things can easily change. We just need things to be settled.
“I think [Quality of Advice reviewer Michelle Levy] had some good ideas and some not some good ideas, but over 20 years working in super I know not to anticipate what the regulator will do. I’m the last to join up because otherwise you can waste an awful lot of time.”
Merger with Active Super
Moving onto the process of its merger with Active Super, it is expecting to complete the deal in late 2024.
The two funds are both profit-to-member funds of a similar size with a history servicing former local government employees in NSW and Victoria. Active Super was formerly known as LGS Super until its rebrand in May 2021 and has $13.8 billion in assets under management while Vision Super has $12.5 billion.
This has been a gradual process with the merger first discussed in June 2022 and a heads of agreement signed between the two funds a year later. Rowe will remain as CEO of the merged entity and Vision Super will be the ongoing entity.
The merged fund will have around 180,000 members and $28 billion in funds under management.
“We are finished with due diligence, have developed a target operating model and expect to transition in early in FY24, subject to it being in members’ best interests,” Rowe said.
Asked what is a consideration when deciding on a merger partner, Rowe said: “We think about can they deliver a resilient organisation in the years ahead and a competitive fee and can they provide the service that members expect? If the answers are yes then it should be good for both groups of membership.”
The deal is far from the only merger activity in the industry with the number of super funds declining from 174 in September 2021 to 137 in March 2023 as a result of mergers and closures, according to JP Morgan’s Future of Superannuation report.
While the newly combined $28 billion fund will be significantly larger than its current size of $12 billion and 84,000 members, it will still be smaller than other funds out there.
According to the latest KPMG Super Insights report, the number of mega funds with more than $100 billion in assets under management have risen from one in 2015 to seven in 2022. KPMG also forecast Australian Retirement Trust and AustralianSuper could become as big as $1 trillion by 2040.
APRA has previously stated that any fund smaller than $30 billion will struggle to achieve scale, but Rowe maintains there is room for smaller funds and that it hasn’t negatively impacted its performance. However, he was resigned on the APRA’s intentions in the industry.
“If the regulator wants to have four funds then that’s what they will get. The push is for consolidation so in the next five years we will find out. Consolidation can be a very good thing for all types of fund size provided you can demonstrate it is in members’ best interests,” Rowe said.
“Look at our fees and costs compared to the bigger funds and we are up there. At the moment [our size] is working for us but will it be working in five or 10 years, I really don’t know.”
However, he felt a move to just four funds would create an oligopoly similar to the state of the big four banks.
“Consolidation is not a threat as such, but if we have four big funds, that’s like four big banks, it’ll create an oligopoly and that didn’t go so well. For some of the mergers occuring involving the biggest funds, you haven’t seen a massive improvement on fees and cost,” Rowe said.
“If it becomes too exaggerated and there’s no room for any diversity then you might lose the nuance in some of the offerings out there.”
As to the future challenges he feels the fund faces, he said the regulatory pressure was an ongoing challenge for funds to meet.
“The challenges are the rapid regulatory change we are facing and the constant coverage of it by the media that super isn’t solving this or that problem.
"There is still no political consensus on super. It’s like a frontier of control, it has been for decades, the Liberal party doesn’t like it typically and fosters policy that doesn’t necessarily favour industry super funds, perhaps favours self-managed super funds a bit more, and the Labor party is a bit more supportive of super generally.
“One [party] pushes one way and one pushes the other, the emphasis changes and the regulator goes with the wind in terms of their focus.”