Here you go @edgescape:

Australian Ethical comes within inches of pinning down Future Super

by Sarah Thompson, Kanika Sood and Emma Rapaport, AFR, "Street Talk", Feb 24, 2025 – 6.32pm

So close, yet so far! It’s only a 12-minute walk from Australian Ethical’s Pitt Street headquarters to the chambers of long-time M&A target Future Super – but oh boy has it stretched out into a Sisyphean journey.

Future Group founder Simon Sheikh. 

Street Talk can reveal Australian Ethical, capitalised at $591 million on the ASX, came within inches of agreeing terms to acquire Future Super in recent days. Sources said its Steve Gibbs-chaired board went as far as instructing Macquarie Capital to prepare to raise equity to bankroll the deal last week as talks progressed to plan, before pulling the plug.

Sources said the two camps have downed tools for now, and it is unclear when – or if – negotiations will be revived.

The ASX-listed fund manager has been a sturdy stockmarket performer even as rivals like Magellan and Platinum lost their shine. It manages $13.3 billion in assets of which $8.7 billion is in “sticky” superannuation money.

It has long been seen as the logical acquirer for the $15 billion-plus Future Super, which is about the only superannuation start-up to build scale against a regulatory backdrop that has entrenched the market power of big, industry fund-backed players. In fact, it has picked off several smaller funds, including insurer Aon’s smartMonday business GuildSuper, Child Care Super and Verve Super.

Nothing to see here!

Of note, Friday’s attempt came after an Australian Ethical spokesperson denied any takeover talks – formal or informal – with Future Super to this column on two occasions last year. In March, Street Talk had reported the start-up was soft sounding for buyers willing to cough up a $300 million-plus bid despite just having ruled off a Series C raise, with the ASX-listed company fingered as a potential bidder.

Seven months later, we revealed talks between the two camps had been playing out for months with Macquarie in attendance. Options explored included a scrip merger that would essentially reverse lift the start-up onto the local exchange.

The combination would have created an ASX-listed player with a bigger portfolio than both Magellan and Platinum, while offering plenty of synergies across the cost base.

Future Super was co-founded by Simon Sheikh, a former GetUp national director, in 2014, and gained popularity via its catchy anti-fossil fuel marketing campaign targeted at woke millennials. It was valued at $225 million on a pre-money basis at its Series C raise.

“Our half-year results are about to be released. They’re looking very strong with another very profitable quarter and some impressive figures. There are no announcements of that nature [a merger] this week,” a Future Super spokesperson said.

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Source: https://www.afr.com/street-talk/australian-ethical-comes-within-inches-of-pinning-down-future-super-20250224-p5lerh

Also, 4 months ago:

Australian Ethical, Future Super keep tabs on each other

by Sarah Thompson, Kanika Sood and Emma Rapaport, AFR, "Street Talk", Oct 29, 2024 – 7.36pm

To merge or not to merge? That is the question that $468 million Australian Ethical Investments and privately owned Future Super have been chewing over for several months.

Australian Ethical CEO John McMurdo. James Alcock

Street Talk understands the two ESG-focused funds management houses have held informal discussions about putting the two companies together but have so far failed to see eye-to-eye on a deal. Sources said the on-and-off talks have stretched out for months, and both sides have run the idea past investment banks, including Macquarie Capital and Jarden, who would be well-placed to land a gig should the talks progress.

Of note, the discussions are miles off the finishing line, with sources describing them as exploratory in nature – more “does a merger make sense?” as opposed to getting down to negotiating the terms. Sources said one possible structure could be Australian Ethical using its scrip to essentially reverse lift Future Super onto the ASX boards.

The two companies’ curiosity about each other is an open secret in funds management circles.

An Australian Ethical spokeswoman said the company ’“takes their continuous disclosure obligations very seriously, there’s nothing to disclose to market”, while Future Super did not respond to a request for comment.

$28.5b combined FUM

Australian Ethical houses an enviable $12.95 billion in funds under management – including $8.4 billion in “sticky” superannuation money – and is making a push for private markets investing. Revenue has grown over 2.5-times in the past five years and punched past $100 million at June 30.

Despite its strong growth trajectory and the fashionable ESG credentials, it has escaped becoming an M&A target because its strong share price provided a natural defence against hostile bidders. That seems to be changing this year, with the stock down 22 per cent in 2024.

As for Future Super, founded by former GetUp! organiser Simon Sheikh, it is among the few superannuation start-ups to achieve scale with some help from bolt-on acquisitions. There’s $15.58 billion-plus in its stables, but profits have been elusive and Sheikh has kept an ear out for potential buyers willing to stump up a bid near $300 million, as documented by this column. It grew revenue by 73 per cent to $61.2 million in the 2023 financial year – but still made a $14.1 million net loss, thanks to hefty financing costs from an old convertible note.

For the 2024 financial year, operating revenue was $73.5 million while the net loss after tax narrowed to $3.8 million. It turned a $2.27 million profit in the September quarter.

Put together, at $28.5 billion the combined group would have more in assets than Platinum Asset Management or Regal Partners and only about $10 billion less than Magellan.

Sources said a merger could bring down both camps’ expense ratio – which is much higher than peers such as Magellan Financial Group – given the synergies between investment team staffing and back-office functions.

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Source: https://www.afr.com/street-talk/australian-ethical-future-super-keep-tabs-on-each-other-20241029-p5kmbh

Also, almost one year ago:

Future Super keeps an ear out for potential buyers

by Sarah Thompson, Kanika Sood and Emma Rapaport, AFR, "Street Talk", Mar 11, 2024 – 5.00am

It’s not just layoffs, bolt-on acquisitions and a series C capital raise that have kept Future Super Group’s top brass busy.

Future Group founder and chief executive Simon Sheikh. 

Street Talk understands the superannuation and investing start-up has been soft sounding the market to scope out potential buyers for the business, which boosted revenue by 73 per cent to $61.2 million in the 2023 financial year – but still made $14.1 million net loss, thanks to hefty financing costs from an old convertible note.

Sources said while the company hasn’t launched an auction, it has been seeking out parties it thinks could pay near the $300 million mark to buy the entire business. Simon Sheikh, a former GetUp national director who co-founded Future Super in 2014 and has grown it to more than $13 billion in assets under management, is understood to be supportive of the sale.

The buyer hunt comes after a busy year, during which the group acquired GuildSuper, Child Care Super and the remaining 80 per cent of Verve Super – funded through a series C round shown to investors at a $225 million pre-money valuation.

Fundraising documents at the time said organic growth clubbed with the acquisitions would take it to $73.1 million revenue and $3.4 million EBITDA for the 2024 financial year, which would further grow to $103.5 million and $24.5 million respectively by the 2027 financial year. The acquisitions followed Future Super’s purchase of insurer Aon’s smartMonday business in 2022.

Sources said integrating recent acquisitions had been tough, while debt costs were still high despite the company having tackled the old convertible notes that cut into FY23 profits.

GetUp a bid!

When contacted by Street Talk, a spokeswoman for Future Super suggested it had received in-bounds, instead of seeking out takeover proposals itself.

“We are not expecting to pursue any offers for the business despite multiple recent approaches from various parties, as to date it continues to be our belief that returns for our members and shareholders, along with impact we seek to make for the planet, are best supported by staying independent,” she said, adding the firm upsized its series C to $20 million in December to bring on Singapore private equity investor Wipunen Incrementum Capital.

The company added it is “strongly profitable as of March 2024″. Its accounts for the 2023 financial year show it posted $14.1 million net loss and negative $2.1 million EBITDA for the year ending June 30. Investors include Assembly Climate Capital, Simon Holmes a Court, Up co-founder Dominic Pym, Ellerston Capital and Understorey Ventures.

As for who has approached Future Super recently, one widely expected suitor, ASX-listed Australian Ethical, ruled itself out on Sunday evening.

“AE can confirm that there is no offer for Future Super Group,” a spokeswoman for the company told this column.

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Source: https://www.afr.com/street-talk/future-super-keeps-an-ear-out-for-potential-buyers-20240310-p5fb9a

In terms of Street Talk articles, it's almost like they like to throw mud around to see if it sticks. If you make enough suggestions and predictions surely some of them will come true.

Also, back in mid-2020 (background):

Future Super and the ethics of 'ethical' investing

by Aleks Vickovich and Michael Roddan, AFR, Jun 12, 2020 – 12.01am

In September 2014, just months after then prime minister Tony Abbott repealed the Rudd-Gillard government's flagship carbon pricing scheme, Future Super threw open its doors with a lofty sense of purpose.

Fossil fuel companies posed dangerous risks to the health and wealth of future generations, and the transition to a clean energy future was a matter of urgency, the activists behind the super start-up believed.

Since federal politicians appeared to be unable or unwilling to give the climate emergency sufficient priority, a plan was hatched to deploy some of the then just under $2 trillion in superannuation assets to the cause.

Today Future Super manages $750 million on behalf of 15,000 Australians, up from $200 million in May 2017. Its membership skews towards Millennials, enticed by the broader social mission and promise of a pollution-free portfolio that aligns with their progressive values.

Much of that growth can be attributed to effective marketing.

Unblessed with the structural ties to employers that the trade union-linked industry funds and bank-owned retail funds enjoy, it has been unable to tap the rivers of gold flowing from the default super system, meaning it has no choice but to advertise.

But several revelations this week have sparked doubts about whether its investment process is as ethical as its world view, and whether it really offers a more enlightened option or just more tailored marketing.

The fund has been found to charge relatively high fees despite being invested overwhelmingly in passive, low-cost products. Moreover, its large allocation to those products has raised questions about whether commercial ties to the manufacturer may be driving risky outcomes for members.

"Ethical products don't always live up to the hype," federal Superannuation Minister Jane Hume said.

Rebates and related parties

Although Future Super claims to invest in “solar, wind and the world's most sustainable companies” to prospective members, the fund’s 2019 annual report showed that 63 per cent of assets in the fund were allocated to two exchange-traded fund products manufactured by ambitious Australian fund manager BetaShares.

The rest of the fund was invested in fixed income securities – mainly debt instruments issued by banks and corporations – and cash products, with a very small handful of shares owned directly by the fund.

Its sub-fund, Verve Super, which advertises itself as "for women, by women", had an even higher allocation to the same two BetaShares ETFs, at 67.4 per cent.

Among the options open to Future Super to manage its member portfolios, using low-cost, relatively diversified products like those offered by BetaShares may be a smarter and more cost-effective method than trying to do it themselves or allocate to expensive active fund managers.

However, an allocation of more than 60 per cent to just one third-party fund manager is understood to be out of the ordinary in the prudentially regulated super sector, and potentially created "concentration risk" for members where most of their eggs are held in the one basket.

That relatively high allocation to BetaShares products was complicated by the fact that Future Super has related party links to the manufacturer.

It was revealed that Future Super founders Simon Sheikh, the former head of activist group GetUp!, and Adam Verwey, a former staffer at rival super fund Australian Ethical and one-time Greens candidate for political office, both sit on the BetaShares responsible investment committee providing “ethical screening” services and advising the investment professionals making the actual portfolio decisions.

The pair take up two of just three spots on the committee, with the third member being BetaShares co-founder David Nathanson.

BetaShares managing director Alex Vynokur said the committee also benefits from the input of a number of unofficial “advisers” from across the industry.

In exchange for the consulting services and time of its directors, Future Super receives a “rebate” on the investment management fees it pays BetaShares.

Neither Mr Sheikh or Mr Verwey are compensated personally and the rebated funds are passed on to members in full, according to the fund’s managing director, Kirstin Hunter.

But nonetheless, the rebate presents potential conflicts of interest in several ways.

Verve Super's marketing included a podcast sponsorship with feminist commentator Clementine Ford.  The Age

First, the rebate could create an incentive for Future Super to allocate a higher proportion of its assets to Australian and global shares than is in members' best interests, since those are the asset classes invested in by the two BetaShares products triggering the rebate, which increases with the size of the allocation.

Second, it creates an incentive to allocate solely to BetaShares, rather than splitting across various managers. While ethical equities funds are still a niche corner of financial services, competitors including Van Eck and Vanguard offer comparable low-cost ethical ETFs.

There is no evidence Future Super has invested in any comparable equities ETFs other than the BetaShares instruments.

The relationship also gives the Future Super representatives considerable influence over a public fund in which many other individual and institutional investors invest. Mr Vynokur said the global equities product, ETHI, was fast becoming one of the more popular on the CommSec Pocket app. But those investors neither have the ability to influence the asset allocation nor are they eligible for a rebate.

Some experts said that because the rebate is passed on to members, the conflict is mitigated, while others said a potentially risky incentive is present either way.

Regardless, the BetaShares relationship could arguably be much more clearly disclosed.

While the annual report lists the percentage allocation to the two products as part of a disclosure on “significant” investments, BetaShares is not mentioned in the official Future Super product disclosure statement or financial services guide, nor is it mentioned on the “how we invest your super” page on its website, which could leave members with the impression that Future Super actively manages the funds in-house.

The documents make no disclosure of the directors’ committee roles or the rebate, or the compensation paid for any services.

Fees and fairness

The way in which Future Super charges its members has also come under scrutiny.

Along with a $93.60 annual membership fee, Future Super charges a combined administration and investment fee of 0.98 per cent per annum, made up of a 0.33 per cent direct and indirect investment fee, and a 0.65 per cent administration charge.

Verve Super’s fees are higher, charging members the same flat annual membership but an administration and investment fee of 1.19 per cent a year.

However, both funds had a remarkably similar asset allocation and investment management structure, with more than 60 per cent of assets in the two BetaShares ETFs along with further holdings in fixed income securities and cash.

Fees for administration and investment were also a step up from the fees charged to members of the public to access the overwhelming majority of the assets: BetaShares' global ETHI fund charges direct investors a management fee of 0.59 per cent a year, while its Australian FAIR product charges just 0.49 per cent.

Ms Hunter said the mark-up reflected the level of active management involved in the different “impact investing” focuses of the products.

The separation of responsibilities between Future Super Investment Services, the investment manager and promoter for the super fund, and Diversa Trustees, the licensed trustee for the fund, is also unclear.

Diversa Trustees is a private company that offers trustee services for several upstart retail superannuation funds. While both trustees and investment managers are responsible for ensuring members’ best interests are followed, it appears Diversa Trustees takes a back seat to Future Super on the investment process and the level of fees.

Ms Hunter said fees were set and approved by the trustee, Diversa. The trustee declined to comment.

Fees are laid out in the relevant disclosure documents, and members have arguably chosen to pay more for their super to support a product with social and cultural goals.

One fund manager put it another way, telling The Australian Financial Review that the whole notion of ethical investing is about giving providers an “opportunity to claw greater margins and charge higher fees in a world that is going in the other direction". Although they added that was a “cynical” view.

But compared with other socially conscious options, Future Super remains an outlier on fees. AustralianSuper’s ethical option, for example, charges 0.74 per cent in fees, plus $117 annual membership while UniSuper’s sustainable option had a 0.37 per cent investment levy along with a $96 yearly membership fee.

On a balance of $50,000, Future Super would cost members $583.60 a year, while Verve Super members would pay $688.60, well above many other funds.

The Productivity Commission found a 0.5 per cent increase in superannuation fees could cost the typical worker up to 12 per cent of their savings, or about $100,000, by the time they reached retirement. Meanwhile, women typically retire with about 40 per cent less super than men.

PR and performance

While its ties to BetaShares may be relatively opaque, Future Super's marketing strategy and target audience are more obvious.

The fund's homepage, for example, is dominated by an image of hope-filled Millennials jumping for joy in back-to-front caps in front of solar panels and clear blue skies.

Future Super founder Simon Sheikh sits on the BetaShares responsible investment committee.  Rohan Thomson



Its sub-funds, Verve Super and Cruelty Free Super, another fund held by Diversa Trustees and to which Future Super is a sub-promoter and sub-investment manager, also adopt a marketing strategy designed to appeal to particular cohorts.

Verve Super has adopted the World War II icon Rosie the Riveter as its logo and sponsored the podcast of feminist Clementine Ford.

Cruelty Free promises superannuation with "no nasties", aimed at the growing demographic of vegan Australians. Its website features a dreadlocked young woman hugging a donkey in the snow.

Marketing by super funds is always contentious, given the legislated sole purpose to generate investment returns for members. But with greater marketing, funds can achieve greater economies of scale, usually at the cost of incumbents that rail against super funds that offer members a different experience.

Future Super argues its political and portfolio goals are aligned, since it believes the value of non-sustainable assets will decrease over the decades, thereby inoculating its members against losses and providing a vehicle for members to "invest in a future worth retiring into".

Ethical funds are also benefiting from strong returns.

Future Super has returned 8 per cent per annum since inception, while Verve Super has returned 7.3 per cent. Both are well above their annual targets of 2.75 per cent above inflation and 3 per cent above inflation, respectively.

In fact, Ms Hunter claimed Future Super was the number one performing fund in Australia for the 12 months to end of April, according to Super Ratings data. Super Ratings did not respond to a request for confirmation.

In super, performance matters, and pointing to the scoreboard has long been an effective defence used by funds when asked about ethical and transparency concerns.

It was a line adopted to great effect by AustralianSuper chief executive Ian Silk at the Hayne royal commission, for example, when he said the outperformance of industry funds over retail funds justifies their multimillion-dollar TV advertising campaigns.

But some observers said the relative outperformance of Future Super and its ilk was more a function of good timing than active management worth paying for.

"It should come as no surprise that a portfolio heavily weighted towards tech, healthcare and US shares, and away from oil, energy and emerging market companies would have outperformed the broad index recently,” Chris Brycki, an ETF market analyst and founder of rival investment app Stockspot, said.

"This could, of course, continue or reverse in the future."

Mr Brycki said ethical investing inherently contains risks, including higher fees and less diversified exposure across the economy.

“It's ultimately a personal choice, so investors should just be aware and comfortable with the impact these could have on their future portfolio,” he said.

They should be aware and comfortable also with the ethics of their ethical investors.

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Source: https://www.afr.com/companies/financial-services/future-super-and-the-ethics-of-ethical-investing-20200610-p5515x

@Bear77

Thanks for sharing

Would have been good if they merged. I'd be up for any raise if they do. I have a smaller holding than before as I'm unsure if being ethical may narrow their choices in investments

Plus this is more playing the payday super changes