The BHP Billiton Superannuation Fund, with assets of $1.7 billion, has become the largest corporate fund in Australian superannuation history to completely outsource all its functions. And, it has done this in a unique “tailored” way.
BHP Billiton Super’s general manager Colin Wirth says the outsourcing move was sparked off by last year’s merger between BHP and Billiton and the news that BHP Steel would be spun off into a separate company.
This meant that BHP’s $3 billion super fund would have to be split into two, with 40 per cent of its assets ($1.1 billion) going into the BHP Steel fund.
“This threatened to disturb some pleasant economies of scales and therefore, increase the costs of the two separate funds,” says Wirth. “Neither BHP Billiton or BHP Steel wanted this, so they approached the fund’s service providers of many years, Frank Russell and Towers Perrin, and they put together a proposal that enabled the two funds to retain their previous economies of scales in a post-BHP Steel spinout environment.”
As a result, on July 1, BHP Steel employees were transferred into their own fund. It continues to be administered by Towers Perrin, but Towers Perrin’s Total Risk Management (TRM) is the fund’s trustee. Frank Russell remains as the fund’s implemented consultant.
Simultaneously, the same steps were taken separately for the $1.7 billion BHP Billiton fund, ensuring that its members enjoy the same services, benefits, terms and conditions that they had before.
“We had to pull the fund apart because of the merger and now we are putting it back together again,” says Wirth, adding that by partnering with substantial service providers like Frank Russell and Towers Perrin, the funds have been able to achieve a tailored solution to their outsourcing needs rather than the “one-size-fits all” solution usually offered by master trusts and industry funds.
The path taken by BHP Billiton and BHP Steel appears to be emerging as a new model for corporate fund outsourcing. Similarly, the $550 million Orica Group Superannuation Fund recently appointed JANA Investment Advisers as its implemented consultant, but handed over the trusteeship of the fund to Watson Wyatt Australia’s new approved trustee, SuperInc.
Wirth says: “The model BHP Billiton chose is not the only one, but it is one that does address the issues that the group was faced with in an individual way. It’s probably only appropriate for corporate funds with assets of $500 million upwards. Under this, providers will probably not negotiate the same levels of tailored service.”
The trustees of the BHP Billiton and BHP Steel funds retired from their duties on July 1, and were replaced by TRM. Both funds set up their own policy committees, which have equal representation from the employers and employees.
The move, however, ends Wirth’s long career at BHP, the last nine years of which were spent managing its super fund. He finished up at the end of June and will holiday in Europe and China before considering his options.
It also represents the culmination of a steady stream of outsourcing moves made by the BHP fund. Indeed, a decade ago, BHP managed everything in-house, including the buying and selling of all securities, employing over 50 people in its super department.
But in the mid 1990s, BHP Super abandoned its balanced manager approach and with the help of Frank Russell, started outsourcing its investment activities to specialist managers. And, after realising that its administration was some way off from best practice, it outsourced this function to Towers Perrin in late 1998, a move that left the fund with a small secretariat of about 14 people.
According to Wirth, outsourcing the trusteeships of two funds “is just the final step”.
