December 8, 2016 / 6:23 AM / 2 years ago

Australian fund legalsuper resists 'pathway to mediocrity' merger pressure

SYDNEY, Dec 8 (Reuters) - Australian pension fund legalsuper said it is resisting pressure from the national financial regulator for small funds to consolidate into larger entities, even as some of its peers welcome the opportunity.

The Australian Prudential Regulation Authority is pressing smaller not-for-profit pension funds to consolidate with the aim of lowering management costs and giving them the scale to compete for assets amid a global hunt for yield.

“The problem is that there is a fixation on growth for the sake of growth, which can be a quick pathway to mediocrity,” said Andrew Proebstl, chief executive of the A$3 billion ($2.2 billion) fund.

He said legalsuper’s purpose was exclusively to service the legal sector and its specific needs.

The profile of the profession, for instance, has allowed legalsuper to negotiate preferential terms with life insurers so that premiums have not risen for six years, Proebstl said.

Every pension fund’s situation should be evaluated on the outcomes achieved for its members, he said. Therefore the industry’s focus on merging funds under A$5 billion was not justified.

“Whether a fund is small, medium or large, it needs to have clarity of purpose and can deliver better value for its members relative to larger super funds,” he said.

Australia’s A$2.1 trillion pool of tax-advantaged retirement savings, known locally as “superannuation” or “super” funds, is among the world’s largest after the U.S., UK, Japan and Canada and is set to reach nearly A$10 trillion by 2035, according to Deloitte.

Equipsuper, which manages A$8 billion in assets, is said by industry sources to be discussing a possible merger with Energy Super to create a A$13 billion retirement fund. ($1 = 1.3464 Australian dollars) (Reporting by Cecile Lefort; Editing by Eric Meijer)

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