Menu Close

Niche super funds get creative to avoid being gobbled up by giants

This post was originally published on this site

Australia’s smallest super funds are being forced into survival mode as increased regulatory scrutiny on fees and investment performance in the country’s A$3.1 trillion ($2.3 trillion) superannuation industry makes mergers all the more likely.

Maritime Super has outsourced its A$6 billion investment portfolio to larger-rival Hostplus to cut costs and boost returns. First Super inked a deal to draw in retirement savings of New Zealand workers who migrate to Australia, adding to its A$3.6 billion asset base.

Such moves highlight how the small-end of Australia’s vast retirement savings industry is adapting, just as the nation’s regulator encourages them to merge with bigger and better performing rivals. Funds managing less than A$10 billion have more than halved over the past decade as consolidation increased, according to Rainmaker data. Competition is ramping up with so-called megafunds that are expected to rule the sector in coming years.

“We’ve got a job, which is to give our members a dignified retirement,” First Super Chief Executive Officer Bill Watson said. “If we can’t do the right thing by the members, it’s time to pack up and go.”

Maritime Super, one of Australia’s oldest pensions that traces its roots back to 1967, has members going back three generations that have worked as stevedores and deckhands, CEO Peter Robertson said. His fund is among those identified by the Australian Prudential Regulatory Authority for underperforming.

“To give up that brand and that loyalty of a maritime fund I don’t think would be wise,” he said.

In May, APRA said funds with less than A$30 billion are “uncompetitive” — that’s about 90% of the 142 funds in the regulator’s database. While some 70 funds completed mergers in the past eight years, APRA isn’t convinced many of these were worth it. A proposed merger between Energy Industries Superannuation Scheme and TWU Super — both underperforming benchmarks — creates just a A$12 billion fund.

Smaller funds play a vital role in diversifying Australia’s pension system with niche and customized offerings, according to the Australian Institute of Superannuation Trustees. More could be done to assist those that have “made the case for their ongoing survival” to pool assets and hunt for better deals, said AIST’s CEO Eva Scheerlinck.

“There are other ways of getting scale without having to merge,” she said.

First Super, with 45,000 members for workers in Australia’s logging, pulp and paper industries, aims to look after about a tenth of the roughly 30,000 New Zealanders that migrate to Australia each year, Mr. Watson said.

Not all funds will be able to compete against giants like AustralianSuper, the country’s largest fund at A$225 billion, and are actively seeking an exit. LUCRF Super aims to merge into AustralianSuper by June next year, while Statewide Super is in formal discussions with Hostplus on merging into a A$77 billion fund.

With less leniency given to mergers that don’t improve scale, size and performance, it may be a matter of time before more small funds are swallowed up.

“I can tell you what we’re going to look like in six months, but beyond that it’s challenging,” Maritime’s Mr. Robertson said. “I suspect the fund will be around in some form whether we’re still a stand alone fund or a division of a larger fund.”