Mine Super’s annual meeting has approved a proposal to merge Recreo, a new fund administration platform, with Certane Group, which bought the independent trustee and responsible entity businesses from the failed Sargon.
The merged entity will pitch the new software platform to super funds as a lower-cost alternative to large providers like Link Group, Iris and Bravura Solutions.
Recreo, a cloud-based workflow tool that allows ‘straight-through processing’, will let funds respond quickly to changing regulations, without having to add new staff to create work-arounds to legacy technology.
Certane is chaired by former Labor finance minster Lindsay Tanner and its CEO is Marcus Price, who used to run e-conveyancing leader PEXA.
Harry Mitchell, outgoing chief executive of Mine Super, and Marcus Price, CEO of Certane, which will merge with Recreo, which Mine developed. Andrew Ratter
Mine Super, which manages $12 billion, rolled its funds onto the Recreo platform last year and Harry Mitchell, Mine’s CEO, will leave the fund to join the merged entity. Mr Mitchell said the new system let it easily respond to the early drawdown of super rules introduced in response to COVID-19, when some other systems struggled to meet fast deadlines to get funds into member accounts.
It costs $30 billion a year to run the $3 trillion superannuation system – so around 1 per cent of the value of assets – according to the Productivity Commission. Of this, $9 billion is spent each year on administration. Mr Price said with official interest rates making it tougher to deliver decent returns to members, losing 1 per cent of forward earnings on costs is too much.
Administration platform fees are typically calculated based on a proportion of total assets under management; currently this is around 20 basis points. Recreo hasn’t set its pricing strategy yet but is planning on being in single digits of basis points. It will be available to funds that don’t use Certane, which operates the Diversa independent trustee business.
Mr Price said scalable, cloud-based, secure, modern architecture would push the cost of administration down because fewer people would be required to conduct manual processes like sending member mailouts and engineering changes to processes. It would also allow funds to make better use data to enhance services to engage members and stop them leaving a fund.
Since the Hayne royal commission, APRA has been focusing on independent trustees like Diversa and Equity Trustees to ensure they can fulfil their responsibilities to fund members and to APRA, as many funds continue to prefer to operate internal trustee boards. On Monday, Diversa said it would close Zuper Super because the fund was too small.
Mr Price said APRA “have been very supportive” of Certane, and want to see strong, independent trustees in the market. “We have had long discussions with APRA on the need of all administration platforms to improve, in order for trustees to do their jobs properly.” The regulator was also keen on better quality data feeds from platforms to assist its monitoring of the sector, he added.
“It’s hard to reduce costs when you are chained to old software that hasn’t got workflows and can’t be easily changed. [Incumbent platforms] keeping try to fix things, but if you are not cloud based and using the right languages, there are limits to how much efficiency you can get out of a legacy platform.”
After the trustee roll-up Sargon collapsed in early 2020, the administrators sold off various assets. The Diversa Trustee business, which Sargon had bought from OneVue the year before, was bought by offshore investors Teddy Wasserman and Matthew Kibble, who are on the Certane board.
Certane and Recreo declined to provide information on the consideration for the merger, which was approved on Tuesday, or the valuation but indicated it was a ‘merger of equals’.
Mr Tanner said a core focus for Certane – and one of the reasons for the merger with Recreo – is providing “better quality, lower cost administration solutions to superannuation funds to reduce costs for members and therefore the ultimate investment outcomes.”
Regulators are under pressure to improve member outcomes since the royal commission and Mr Tanner said this will “manifest itself in two ways: integrity and cost. We accept we have a key obligation to play a role in delivering better outcomes, and we think there is alignment in what we are seeking to achieve, and what regulators are doing to protect data and take embedded costs out.”
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