Mine Super is about to launch its new investment menu in preparation for its merger with TWUSuper.
Mine Super is about to launch its new investment option menu ahead of the merger with TWUSuper early next year, when the two funds will combine to form Team Super.
The fund will launch a new MySuper default option, which will consist of a life-cycle fund with a simplified three-stage structure.
The first cohort will include all members up to 49 years of age, who will be allocated a high-growth investment option with up to 92 per cent in growth assets. The second cohort will be made up of members between 50 and 54 years old and they will be assigned a growth option with 80 per cent growth assets.
Once members are 55 years or older, they will be moved to a balanced fund option based on TWUSuper’s current balanced default option and which will have around 73 per cent growth assets.
For Mine Super, the redesign is a significant departure from the current 16-stage life-cycle default option.
Part of the reason to reduce the number of stages is to avoid de-risking a member’s portfolio too early, Seamus Collins, Chief Investment Officer of Mine Super, says in an interview with [i3] Insights.
TWUSuper was a traditional fund in the sense that it had a single, balanced default. Mine Super has always been very convicted around taking more risk for the younger membership and then de-risking towards retirement in a life-cycle construction. We were able to reach an agreement on a product that had the best of both worlds
“TWUSuper was a traditional fund in the sense that it had a single, balanced default. Mine Super has always been very convicted around taking more risk for the younger membership and then de-risking towards retirement in a life-cycle construction,” Collins says.
The design of the new life-cycle option saw a streamlining of the default to pick up some of the benefits of the simpler single default model and holding growth through retirement by incorporating the TWU balanced strategy for older members .
“So, we were able to reach an agreement on a product that had the best of both worlds,” Collins says.
In addition to a new life-cycle option, Mine Super is also introducing a moderate and defensive investment option to align with TWUSuper’s current product line-up. It also will continue its own single-sector options, including dedicated Australian and International share options.
The new menu is expected to go live on 20 May this year.
“We feel really good about being able to do a lot of pre-merger work so that we’re not making changes right into the SFT (successor fund transfer) date. We can have a very high degree of confidence that a lot of things are in place,” Collins says.
The two funds have also agreed on an external fund manager line-up.
“We’re in the process of appointing around five of their managers and we’ll onboard their managers before the SFT,” Collins says.
“We had two or three common managers as well, so we were really quite aligned. And we’ve terminated a couple of our managers.”
Collins was particularly excited about TWUSuper’s book of private market assets, which he sees as a great addition to Mine Super’s line-up.
“They had a good footprint in funds that we have conviction in, such as IFM’s Australian Infrastructure Fund, ISPT and the property sector. These are non-contentious positions,” he says.
New Life-cycle Default
The new investment menu is a big change for TWUSuper members who are younger than 50. Most of these members are currently in the fund’s balanced default, but on the SFT date will move to a high-growth option .
It was a decision that was carefully considered as the shift to high growth comes with higher investment risk. But Collins says ultimately it came down to ensuring the merged fund would seek to maximise retirement outcomes for members.
“I really feel strongly that having younger members with really long investment horizons in balanced portfolios with bonds and cash exposures is potentially leaving money on the table,” he says.
But whereas under the new structure TWUSuper’s younger members will take more risk, Mine Super will see some of its older members move to higher-growth options.
Bringing the two funds together, there will be some changes on both sides. In simplistic terms, there is a little higher growth and that is to address the concerns around the idea that life-cycle options de-risked people too aggressively
“Under our current architecture, at 65 [years] our members are 100 per cent in a conservative product, which has around 58 per cent allocated to growth assets. Going forward, they’ll be in a balanced product, which has around 73 per cent growth exposure,” Collins says.
“So, bringing the two funds together, there will be some changes on both sides. In simplistic terms, there is a little higher growth and that is to address the concerns around the idea that life-cycle options de-risked people too aggressively.”
Although the middle stage covers a relatively short period of only four years, he says this stage is necessary to avoid taking on too much sequencing risk.
“We did want to have that two-step [process] so we didn’t go all the way from high growth to balanced in one hit. And even though it’s only four years, it’s still important in terms of the sequencing risk … that you’ve got that intermediary stage in case you literally de-risk straight after a market crash or a market correction, which is obviously the scenario you want to avoid,” he says.
Delay of Merger
The merger of the two funds into Team Super was initially planned to be finalised by mid-2024, but the complexity of the merger has turned out to be greater than anticipated and the fund now expects to finalise it in the first quarter of next year.
Collins says it wasn’t so much the investment activities that added complexity, but more the fund-specific arrangements relating to administration, member services and insurance that take time to sort out.
For example, Mine Super was managing administration internally, but this will now be outsourced to SS&C Technologies, using the company’s Bluedoor platform.
“We didn’t want to be forced into adhering to a self-imposed deadline when facing some of the complexities that involve mergers across entities with different investment offerings, different administration structures and different insurance offerings. And we’ve had quite a big change,” Collins says.
“Investments, I would say, were probably on the easier end of the merger complexity [spectrum] because at the end of the day the majority of APRA (Australian Prudential Regulation Authority)-regulated super funds invest in a similar way.”
Investments, I would say, were probably on the easier end of the merger complexity [spectrum] because at the end of the day the majority of APRA-regulated super funds invest in a similar way
The merger will create a fund with $21 billion in assets under management. The larger size will allow the fund to operate more efficiently and increase its activities. But Collins says the new size does not justify internalisation of asset management functions.
“My view is that full-blown portfolio management is a huge undertaking. It changes the culture, the risk culture, the way a fund hires people, the kind of people it hires and you need to change the systems,” he says.
“I would never undertake that step lightly, although I see the genuine advantages.”
He does think the investment team can expand the range of activities it currently undertakes.
“There might be opportunities in private assets, where we can be a bit more hands-on if they’re in areas that we have a strong level of familiarity with,” he says.
“There are things like treasury management, optimising our portfolio, being a bit more active in cash management, in agent lending and those kinds of balance sheet transactions that you get from being a long-only super fund.”
ESG
Although both funds draw members from the emission-intensive sectors of mining and transportation, Collins says the new board will consider environmental, social and governance (ESG) factors closely and they acknowledge the challenges the energy transition throws up.
The merger with TWUSuper will also bring a higher level of ESG reporting expertise to Mine Super, since TWUSuper is a signatory of the United Nations-backed Principles for Responsible Investing (UNPRI).
“Both boards have indicated a real strong commitment to responsible investment. From my experience of talking to trustees on both sides, I would describe us as pragmatic, acknowledging that the transition is occurring, and we need to lean into that,” Collins says.
“But we’re not going to take aggressive steps that target or disadvantage our members. As a fiduciary, our members come first. But we certainly are actively engaged with the UNPRI, with ACSI (Australian Council of Superannuation Investors), looking at what the way forward is.”
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[i3] Insights is the official educational bulletin of the Investment Innovation Institute [i3]. It covers major trends and innovations in institutional investing, providing independent and thought-provoking content about pension funds, insurance companies and sovereign wealth funds across the globe.