First State Super and WA Super begin merger talks

First State Super and WA Super have signed a memorandum of understanding to begin formal merger talks in the latest sign of consolidation in Australia’s superannuation sector.

The combined funds would have around A$132 billion ($87 billion; €78 billion) in assets under management and the merger would further increase First State Super’s size after its merger with VicSuper completes at the end of June 2020.

This would place the fund in second place on a list of Australia’s largest superannuation funds, behind only the A$165 billion AustralianSuper.

In a joint statement, the funds said that they shared common values, a similar member base, and “understanding of the value of financial advice.” A merger would allow members of both funds to benefit from stronger returns and reduced fees over time, they added.

First State Super already has a presence in Western Australia through its financial planning arm StatePlus, which it acquired in 2016. That business has around 8,000 members and clients in the state, and a merger would see the fund count more than 60,000 members in WA.

First State Super has been making agriculture investments for several years, with exposure to water rights, horticulture and poultry.

It owns a portfolio of water rights managed by Argyle Capital Partners and entered into a sale-and-leaseback deal with Select Harvests to acquire several thousand hectares of almond orchards in 2015. First State also acquired chicken broiler business ProTen in 2018 for approximately A$350 million through a special purpose vehicle called FSS Agriculture, which it wholly owns and is managed by Sydney private equity firm Roc Partners.

It expanded ProTen this year through the acquisition of 17 broiler chicken farms from Rural Funds Group for A$72 million. It also holds the 40-year concession to run Victoria’s land titles business alongside an interest in New South Wales’ land registry.

WA Super announced its first foray into agriculture investment last year when it partnered with Impact Investment Group to launch the WA Impact Investment Fund, a closed-end vehicle that will focus on impact investing in the state. WA Super was the fund’s founding investor with a A$20 million commitment.

First State Super draws most of its member base from public-sector works in health, education and other public services. WA Super is a not-for-profit industry superfund with its roots as a fund for WA local government employees.

WA Super CEO Fabian Ross said in a statement: “We recognize in the current superannuation environment that size can make a difference. With size comes scale, which can have a significant impact on our members’ fees, returns and ultimately their long-term retirement savings.

“As such, we have determined that a merger with a like-minded superfund would add value not only to our members, but to Western Australians too, as it would enhance the delivery of financial services and education across WA.”

First State Super CEO Deanne Stewart said the merger would continue in assisting the fund to build size and scale for its members, and added that she expects superannuation fund consolidation to continue.

Due diligence on the merger is due to be completed by the middle of 2020.

VicSuper’s merger with First State Super will complete on June 30 this year, with Stewart continuing as CEO of the combined fund and VicSuper’s current chief executive Michael Dundon becoming deputy chief executive. Neil Cochrane, chair of First State Super, will serve as chair of the combined fund.

Several Australian superfunds completed mergers or entered talks about a merger in 2019. The largest of these would be a tie-up between Queensland funds QSuper and Sunsuper, which would create Australia’s biggest superannuation fund with more than A$180 billion in AUM.

HostPlus and Club Super, and Equip Super and Catholic Super, also completed mergers last year.