(Pictured: Gerard Noonan)
Comment by Greg Bright
Media Super has taken the unusual decision to do away with the role of chief investment officer, terminating Jon Glass after five years with the $3.5 billion fund. This has been done to save on costs.
Graeme Russell, the chief executive, will now oversee investments with the support of investment analyst Charles Wu.
Media Super reviewed its allocation of resources for the current environment and decided the money – whatever Dr Jon’s salary was – would be better deployed elsewhere in pursuit of the fund’s growth plans.
And herein lies the nub of the problem. Media Super’s growth plans are so ambitious, laid out for Russell when he joined the fund in December 2012, that they can be satisfied only by mergers or acquisitions.
To put the money saved by making the CIO role redundant into perspective, Glass was a part-time employee, working three or four days per week.
To be fair, Media Super faces some structural problems, which are outside its control, due to the changing media industry generally. The industry has become very fragmented because of the internet. The three major commercial employers of journalists and media management – Fairfax, News and Bauer Media (formerly the Packer magazines) – are all downsizing. On the other hand, barriers to entry for the alternative provision of news and information have been slashed.
Printers, too, acquired through the merger with Print Super, face an uncertain and difficult future due to digitalisation.
The new jobs in the media tend to be in the corporate world, producing client information, or among the blogosphere, or in web design. It is hard for a small fund to reach this disparate universe of people.
And even the actors and musicians acquired through the merger between JUST and JEST in 1992 are having a more difficult time than they traditionally have had due to flat Australian film, TV and commercials production levels.
The trustees of Media Super, under chair Gerard Noonan, a former Fairfax journalist who became the inhouse union rep and therefore stymied his career there, understand the need to grow, given their current offering to members. I believe they are not only going about this the wrong way, they are also blind to other possibilities for a long-term viable fund.
Gerard’s stint as editor of the Australian Financial Review in his previous life should have told him that companies whose only strategy is to embark on roll-ups – acquisitions, sometimes at whatever cost – invariably destroy shareholder value. At least, that is, the original shareholders who paid for the acquisitions.
In any case, the fund has been unable to attract a significant merger partner since Print Super in 2008. And that on-again off-again merger took years to negotiate. Looking at Media Super’s offering, you’d have to say there are probably better prospects elsewhere for any like-minded fund.
Importantly, the fund has been unable to win away the two big outsourced journalists’ funds, News Corp and Fairfax, which chose Russell Investments and Mercer Consulting respectively. Gerard has been battering away there for years, with no success.
The fund has no member-directed investment option (only the old-fashioned member choice options which end up in unit trusts), although this was first discussed by Glass a couple of years ago, when Ross Martin was chief executive. Martin was pushed out in 2012 and replaced by Russell, the former chief executive of First Super.
Media Super has a good group insurance contract, getting in to renegotiate at an opportune time, but this will soon be dissipated in the current environment of soaring insurance premiums. It also has a workable, if limited and unexciting, choice of retirement products. It appears to have no plan to stem the tide of higher-balance members who want more flexibility going elsewhere or setting up an SMSF.
In other words, it is a very pedestrian-looking fund with an increasingly tenuous relationship with its older members. Certainly this one!
But it didn’t have to be that way. This is what the fund should have done starting several years ago:
> Do a proper study of the membership and the likely trends due to fragmentation of the media, including print and associated industries. Ask the members what they want.
> Identify what the fund could conceivably do to retain those members, especially those with higher balances. The board has enough media industry experience to know that there would be a lot of members taking redundancy packages from the big employer groups
> Come up with a plan to attract new members. Media Super long ago stopped being a craft fund, where potential new members are readily identifiable. It can no longer rely on the “fathers of the chapel” (as the printers’ onsite union reps were called) and other union reps to cajole colleagues into joining. But that doesn’t mean the fund cannot build a community of members. It’s a digital world. If there was ever a fund which should be able to take advantage of new media to attract members it’s Media Super.
> Look at mergers, sure, but only when they make sense. Certainly don’t give your incoming chief executive a FUM and membership growth target as his main KPIs. Interestingly, those KPIs don’t even figure in the main targets of the senior executives of some other funds, including Australian Super. Customer service and investment returns are the main targets, as they should be.
> Refresh the board. The other long-standing board member, pre-dating even Noonan’s tenure, which dates back to 1991, is Chris Warren, who is federal secretary of the Media Entertainment and Arts Alliance (MEAA). Warren was a founding trustee of the original JUST in 1986. He is also ex-Fairfax but he eschewed a journalistic career early on, choosing a trade union one instead. Others have been on the board since 1997 (Philip Andersen), 2000 (Peter Halters) and 2002 (Katrina Ford).
> Build the investment team. Glass was given scant resources at a time when the fund has needed to differentiate itself in some way from the larger funds with superior offerings. The fund can do three things in this regard: slash the cost to members; provide superior investment returns; provide superior customer service. Take number one out of the picture as unreasonable and you’re left with lifting returns and/or customer service.
All these things require money, but, harking back to his Australian Financial Review days again, Gerard should know that when a business gets itself into a cost-cutting funk, especially a small business in what is still a stellar growth industry, its days are numbered. If Media Super was a listed company, hedge funds, activist managers and other hostile suitors would have taken control long ago and either invested in the growth of the business or shut it down and sold the assets. Certainly such investors would have ousted the board.
A couple of years after its merger with Print Super, Media Super decided to ditch its member administration and asset consulting contracts with Mercer in favour of SuperPartners and Frontier Advisors. This was also done primarily to save on costs. Without many more boots on the ground provided by the individual funds, or at least paid for by them, SuperPartners’ customer service will be the same as about half the industry funds in the market.
So, that leaves investments as the most cost-effective place to invest resources in order to provide a point of differentiation for the fund through better and more tailored returns patterns.
At an AIST breakfast in Sydney last year, chaired by Gerard, who is also vice president of AIST, I asked a question from the floor about what funds could do, using Media Super as a specific example, to combat losses to the SMSF market. I asked whether the member-directed investment options (MDIOs) would likely be successful in this regard. I said that my accountant asked me when I would set up an SMSF almost every time I saw him. I was happier, then, I said, to have Jon Glass handling the bulk of my super rather than trying to do it myself. I just wanted a little more flexibility as I approached retirement age.
In his response Gerard said that, while the jury was still out on MDIOs, Media Super would not be introducing one. He said that if I wanted to pursue that direction, I should probably look at moving to Australian Super or another fund.
I have been a contributing employer and member of Media Super, or its predecessor, since about 1987. However, I’ve known Gerard a long time – we were both on the Australian Financial Review together in the early 1980s – and I did not take offence at that. I could have responded, though, that another option for the fund might be to get a new chairman. I trust he, similarly, doesn’t take offence at that.
