The two Queensland-based funds said they were engaged in “preliminary, non-binding discussions over a possible partnership” and did not provide any further information.
The merger between the top-10 funds would combine QSuper’s A$113 billion ($78 billion; €70 billion) of assets under management with Sunsuper’s A$68 billion to create an entity with more than A$180 billion of AUM.
QSuper has a 5.7 percent allocation to private equity, equating to A$4.6 billion of AUM, according to PEI data. Sunsuper has a variable allocation to private capital, which includes buyouts, venture capital and special situations, depending on the risk profile selected by its beneficiaries. Its A$6.4 billion growth option has an 11 percent allocation to private capital, per its latest investment report.
AustralianSuper, currently the country’s largest fund, had approximately A$165 billion of AUM at 30 June 2019. It has a 3 percent allocation to private equity, equating to around A$5 billion of AUM, according to PEI data.
QSuper chair Karl Morris and Sunsuper chair Andrew Fraser issued a joint statement on the discussions: “There is an absolute responsibility upon trustees to consider how to best serve their members’ interests. Whether a partnership between our two funds could be better for both QSuper and Sunsuper members is an appropriate enquiry.
“Whether or not that consideration proceeds beyond preliminary discussions is dependent on many factors.”
The move is the latest in a series of mergers and potential mergers in Australia’s superannuation sector.
First State Super and VicSuper remain in negotiations over creating a A$125 billion combined entity, which would be third largest in terms of total AUM after the QSuper-Sunsuper fund and AustralianSuper.
Hostplus, with approximately A$45 billion of AUM, on 1 November completed a merger with Club Super, a far smaller fund with around A$600 million of AUM. Equip Super and Catholic Super also completed a merger last month to create an entity with more than A$26 billion of AUM.
Sunsuper itself has completed two mergers in recent years. It merged with KineticSuper in 2017 before merging with rural fund AustSafe Super earlier this year.
Superannuation fund mergers are expected to continue after the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission warned that underperforming funds could be closed down or forced to find partners after criticism levelled during the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2018.
Australian superannuation funds reported a decline in private equity performance over the 12 months to July amid “fully valued” investment conditions. The asset class returned 12.7 percent over the year ending 30 June, down from 17.6 percent for 2017/18, according to a report from superfund consultancy Chant West.
The Australian Investment Council, Australia’s private equity and venture capital industry body, has called upon the country’s new federal government to scrap fee and cost disclosure regulation for superannuation funds. It urged the administration to remove regulatory hurdles to greater levels of investment in “value-adding asset classes like private capital”.
– Alex Lynn contributed to this report.