Betashares will continue to work with all of its existing clients, including a handful of superannuation funds, after it enters the market itself.
The ambitious Australian ETF specialist last week announced it would acquire Bendigo Superannuation Limited – a subsidiary of Bendigo & Adelaide Bank which acts as trustee of its SmartStart Super and and SmartStart Pension products – for an undisclosed sum, subject to regulatory approvals.
The acquisition would add $1.4 billion in retirement savings to Betashares’ overall assets under management and mark the asset manager’s entry into the superannuation market after looking for a suitable launchpad for more than a year. It has long harboured ambitions of extending beyond its specialisation of ASX-listed managed funds, a market in which it has become a successful challenger against global giants including Vanguard, BlackRock and State Street.
Betashares’ slated foray in superannuation follows that of Vanguard, which announced in November 2019 it would launch a retail fund, which it did in November last year after a lengthy and complicated birth. It has amassed about $500 million in member assets since, without any merger and acquisition activity.
In October 2020, Vanguard shocked the market by announcing it would forfeit its 20-year-old business managing segregated mandate accounts for third-party Australian institutions (which was estimated to be worth between $50 billion and $100 billion) in order to shore up its chances of success as a retail super provider in its own right.
But while Betashares will continue to compete heavily with its larger US-headquartered rival in the super market, it will take a different approach. Investment Magazine can reveal it intends to retain its book of institutional clients if regulators approve the Bendigo transaction.
“There will be no changes to our existing ETF business other than executing on our plans for significant further investment in growth,” a Betashares spokesperson said. “As a result, we’ll continue to work with all our existing clients in the same way we have for over a decade.”
Bedrock of our business
The spokesperson declined to disclose the size of its institutional book, but it is understood it works with a handful of APRA-regulated super funds, most of which hold units in Betashares ETFs, rather than operating bespoke mandates with the asset manager.
Future Super, for example, is understood to have the bulk of its $1 billion AUM invested in ESG-themed Betashares ETFs. A number of funds also hold units in Betashares’ popular High Interest Cash ETF, which manages $3.2 billion in assets on behalf of both retail and institutional investors.
There is no suggestion that managing assets for third-party institutions while separately operating an APRA-regulated fund breaches any laws or regulations.
In a public statement announcing the acquisition, Betashares CEO Alex Vynokur said stakeholders can expect the firm to bring its disruptive, low-cost ethos to the super industry.
“For most Australians, superannuation is the largest asset outside of the family home and plays a key role in each Australian’s wealth journey and retirement outcomes,” Vynokur said.
“As such, while ETFs will always remain the bedrock of our business, we are equally determined to bring our ethos of diversification, cost effectiveness, investor education and engagement into the superannuation sector, and it is a natural next step in our growth strategy.”
Both Betashares and Vanguard may face a regulatory hurdle in the form of APRA’s viability threshold which has been used to incentivise or even compel smaller funds to merge with peers. The level of AUM at which APRA believes a fund is sustainable is widely believed to be in the realm of about $30 billion to $50 billion.
But Vynokur indicated it may be willing to put its balance sheet to work in expanding its super business even after it integrates the Bendigo asset. “We have been actively exploring entry strategies for some time, and have a long-term plan to significantly invest in building our superannuation presence,” he said.
For Bendigo, the deal would mark its near-total retreat from wealth management after the Hayne royal commission. The ASX-listed regional bank sold its financial advice business to IOOF (now Insignia Financial) in April 2019.
“Following a review that considered the interests and needs of our members and the future investment required in the business, the bank has decided to proceed with the sale of BSPL, in line with the Bank’s strategic imperative of reducing complexity,” Bendigo chief customer officer for consumer banking, Richard Fennell, told the ASX last week.