Mine Super, a A$12 billion ($8.1 billion), Newcastle, Australia-based superannuation fund focused on mine sector workers, and TWUSUPER, a Melbourne-based fund overseeing more than A$7 billion for Australian transport sector employees, have become the latest players in Australia's fast-consolidating retirement industry to explore a merger.
The two funds Friday said they signed a non-binding memorandum of understanding to explore a merger that would create a combined entity managing "nearly A$20 billion for over 150,000 members," according to a joint news release.
The resulting fund would still be relatively small in an industry where top players, such as AustralianSuper and Australian Retirement Trust, are overseeing more than A$200 billion in retirement assets each. Regulators have suggested competitors will need greater scale to achieve adequate investment results at acceptable fees.
The Australian Prudential Regulation Authority, the top regulator of the country's retirement funds, released details Thursday of results for the annual performance test APRA put in place a couple of years ago to ensure disengaged workers don't remain in funds that persistently underperform.
The announcement noted that 28 default MySuper retirement products have closed since APRA released its first industry "heat map" in 2019, providing workers with a ready means of comparing the returns their super funds are delivering. Predominantly through consolidation, "1.5 million member accounts, containing A$51.6 billion in member benefits, have been transferred to other products," the announcement said.
In an interview with Pensions & Investments in June, Edward Smith, TWUSUPER's chief investment officer, conceded that scale brings benefits, but offsetting that to some extent, he said, is the fact that more modestly sized funds can better take advantage of alpha opportunities in capacity-constrained market segments, such as Australian small-cap equities.
Mr. Smith couldn't immediately be reached for comment Friday.
Both Mine Super and TWUSUPER passed APRA's performance test for the past year.
In Friday's joint statement, the two funds said they'll undertake extensive due diligence to determine if a merger will be in the best interest of their members — a process that may take several months.