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Mergers and scale in an uncertain future

Mergers and scale in an uncertain future. “Everybody wants to go to heaven, but nobody wants to die”. PAST SUCCESS * Not-for-profit *simple products and fees * low-cost distribution *collaboration *stable cash-inflow *little demand on.

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Mergers and scale in an uncertain future

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  1. Mergersand scale in an uncertain future “Everybody wants to go to heaven, but nobody wants to die”

  2. PAST SUCCESS * Not-for-profit *simple products and fees * low-cost distribution *collaboration *stable cash-inflow *little demand on • PRESSURE ON COLLABORATION • Increased scope for competition between funds • Self reliance, insourcing, investing in brand challenges existing collaborative ventures • Consolidation and fund inflows see disparity in size and scale between funds • PRESSURE ON COSTS • Distribution model changing. Alternative channels costly. New low cost competitors • Demography, fund outflow and/or proliferation of products and fees • Consumer preference for bundling delivered through mobile technology

  3. Big isn’t everything, but it’s not nothing

  4. Fund growth is uneven Net contributions – industry and public sector funds 2012/13 Source: APRA

  5. As is labour market growth DEWR projected employment by industry 2018

  6. What’s the question? • What will define our fund’s footprint into the future? • Do we have a stable, predictable, secure and low-cost source of new members and cash in-flow? • Would our fund win its current default business in an open tender? • Is self-interest a factor in our decision?

  7. Are mergers the answer? • Scale in administration and investments • Reduce/eliminate competition between NFP funds • May secure reliable cash flows to merged funds • Should only be pursued where: • merger will improve net investment performance for the majority of the members of the merging funds • offer members complementary product and service range • Merging should strengthen distribution capability

  8. AGEST looked for growth first

  9. Selected tender process

  10. Programme of work • Due diligence and cost-benefit analysis • Detailed review of economies in admin, trustee, and investment • Post-merger valuation alignment • Group life insurance • Finance and tax policies, including any contingent tax liabilities, stamp duty for each asset, DTA, present entitlements to trust distributions • Implementation planning, governance and responsibility • Relationship with service providers, especially outgoing providers

  11. Risks • One-off merger costs are excessive • Reserve equalisation, run-off insurance, staff redundancies, long-term leases, administration and custodian transitions, due diligence, member communications, stamp duty • The benefits of the merger are not realised • Poor execution, wrong partner selection • Diminished affinity with fund amongst members, employers and stakeholders

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