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UPDATE 1-Australia pension fund Equipsuper looking for growth opportunities - CEO

Published 17/11/2016, 05:48 pm
© Reuters.  UPDATE 1-Australia pension fund Equipsuper looking for growth opportunities - CEO

(Add quotes, details on fees and assets)

SYDNEY, Nov 17 (Reuters) - Australian pension fund Equipsuper is exploring ways to become more competitive in the A$2.1 trillion ($1.57 trillion) industry, a top executive said on Thursday, but declined to comment on reports of a possible merger with Energy Super.

"We are looking at opportunities for scale to reduce cost and make ourselves more competitive," said Nicholas Vamvakas, acting chief executive of Equipsuper, which manages A$8 billion of assets.

Vamvakas however declined to comment on reports of a possible union with Australia's pension fund Energy Super which would create a A$13 billion retirement fund.

"We are talking to a number of parties," he said.

Australia has one of the world's largest pool of tax-advantaged retirement savings, along with the United States, Canada, Britain and the Netherlands.

Called superannuations, Australia's retirement savings pool is projected to reach nearly A$10 trillion by 2035, according to Deloitte.

Superannuation is a mandatory scheme launched by the government more than 20 years ago, with salary contributions expected to grow over time to 12 percent from the current 9.5 percent.

The Australian financial regulator is putting pressure on small "super" funds to consolidate and form bigger funds. That way, they would lower management fees while having the scale to compete for assets amid a global hunt for yield.

While Equipsuper, a not-for-profit superannuation fund, has already cut management fees this year by 15 basis points, it wants to do more.

Vamvakas said Equipsuper could easily shed an additional 10 to 15 basis points if it doubled in size. The fund currently charges 0.93 percent in management fees for the national benchmark fund called "MySuper."

Fees typically range between 0.7 percent and 2.0 percent among not-for-profit organisations, which together manage around a quarter of the A$2.1 trillion national pool.

The fund returned 3.42 percent last year, below its annual target of 4.72 percent. "With returns so low, fees are extremely important," said Vamvakas.

Equipsuper, which has about three dozen external fund managers including one hedge fund, said they were considering other options to reduce investment fees.

It already manages around one third of its assets internally with a team of seven in domestic equities, fixed income and cash.

Having a large allocation to infrastructure assets with direct stakes in Australia's Brisbane Airport and Flinders Ports, Vamvakas said the sector now looked relatively expensive.

The super fund has added exposure to alternative investments such as credit and emerging markets over the last 18 months.

Around 60-70 percent of the fund is invested in growth assets, including 45 percent in domestic equities, while the balance was in more defensive assets. Property accounts for 10 percent and infrastructure 3 percent. ($1 = 1.3371 Australian dollars)

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