Supersize Me Too!
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Consolidation in the Australian superannuation sector
Australia’s superannuation industry is a significant part of the investment landscape – with over $3.4 trillion in Funds Under Management
(FUM) managed by over 120 regulated superannuation funds (excluding self-managed superannuation funds).
This week, we saw one of Australia’s largest superfunds - Australian Retirement Trust (ART) announce its intentions to merge with the
similarly sized, Australia Post Superannuation Scheme (APSS). The resulting behemoth will have more than $230 billion in funds under
management and over 2 million members. A year earlier, ART was itself fashioned from a merger between two smaller funds - QSuper and
So, what’s driving this wave of merger activity in the superannuation space?
The Royal Commission
In 2018, the Royal Commission inquiry into misconduct in the financial services sector made several key recommendations pertaining to
superannuation funds. Broadly speaking, these recommendations included:
- proposed changes to the financial advice and fee recovery model
- implementation of the single default account for life
- increases to regulatory oversight and monitoring
- the introduction of the anti-hawking provisions
The recommendations were largely adopted, with the added costs of compliance and regulation passed onto super funds. The anti-hawking and
single account consolidation policies both impacted revenue growth prospects, particularly for smaller funds. The twin pressures of rising
costs and lower revenue growth have served as a tailwind for funds to merge to achieve the required economies of scale necessary for
In late 2017, the Australian Government tasked another government body, the Productivity Commission (PC) to conduct a review into the
efficiency and competitiveness of Australia’s superfunds. Among other findings, the PC review found that over 90 APRA-regulated funds lacked
the required size and scale (assets under $1 billion) to deliver value-for-money outcomes for superfund members. The review also highlighted
fund underperformance and a general lack of visibility of fund performance relative to associated fees and costs.
In response, the Australian Prudential Regulation Authority (APRA) instituted ‘heatmaps’, a performance appraisal system aimed at providing
greater transparency of (and to identify, name and shame) underperforming super funds. By turning up the ‘heat’, APRA also lit the
proverbial firecracker under the growing merger activity we observe in today’s super environment.
Super-Size Me Too
So, with the bigger-is-better mindset well entrenched, the media has been abuzz with news of potential merger activity – with Unisuper ($105
billion), Hostplus ($68 billion), REST ($65 billion), and CBUS ($67 billion) said to be in play. The KKR-backed Colonial First State is
also rumoured to be on the acquisition trail.
We expect that Australia’s superannuation landscape will be shaped by the emergence of a half dozen or so super-sized or Mega funds. The
question is, will the largest funds willingly absorb all of the subscale superannuation managers and hear their calls to ‘super-size me
too’, or will it be left to the regulator to deal with the smallest finds in the market as the Mega funds grow around them?
Should you require further information please contact:
Chris Mundey +61 421 329 615