Retirement
Rise of the mega fund set to dominate super industry
Changing government regulation and the COVID-19 pandemic have led to an increase in superannuation mergers, with the majority of super assets now controlled by just a handful of funds, an industry report has revealed.
Rise of the mega fund set to dominate super industry
Changing government regulation and the COVID-19 pandemic have led to an increase in superannuation mergers, with the majority of super assets now controlled by just a handful of funds, an industry report has revealed.
KPMG’s Super Insights 2021 showed that the changing government regulation and the COVID-19 pandemic have increased the number of superannuation funds that are merging.
Using ATO and APRA data, KPMG has focused on APRA-regulated funds, which represent $2.4 trillion in assets under management. During 2019/20, the number of funds had fallen from 171 to 154.
These mergers are leading to just 12 superannuation funds dominating over 77 per cent of members accounts and 76 per cent of funds under management.
According to the report, five ‘mega funds’ – funds with over $100 billion in assets – have emerged and will control 47 per cent of the assets and 43 per cent of members superannuation assets.
Earlier this year, it was announced Sunsuper and Qsuper would become one of Australia’s largest superannuation funds after the two announced a merger.
The report also details mergers between Post Super, AustralianSuper, IOOF and MLC, Aware Super and AMP, which will all create new mega funds.
“The standout issue in the industry is consolidation. We see an increase in ongoing merger activity – which kept up during COVID but will now accelerate, mostly in the industry funds sector,” KPMG national sector leader, asset and wealth management Linda Elkins said.
Ms Elkins predicts: “Over the next few years, we will see an increase in scale of the ‘mega’ funds (over $100 billion) and a widening gap between the ‘sub-mega’ funds (over $50 billion) and those lower down.”
In addition, KPMG is predicting that the changing market environment, including Your Future Your Super reforms, is likely to see mergers increase.
“The potential effect of stapling a member to their existing super fund is expected to provide some funds a significant challenge attracting new members. For many funds, meeting rising member expectations will lead to increased costs, and the challenge is to find more sustainable ways to operate,” she said.
“These increasing expectations, and the challenging regulatory environment – such as the ongoing impact of APRA’s MySuper Product Heatmap – will continue to drive mergers, as we see from current market discussions.”
However, KPMG noted the key issues for mergers this year is maturing regulatory and government settings, business model sustainability, separation and integration, globalisation and rising member expectations.
“Having said that, there is definitely still a place for new entrants. We have witnessed new participants to the industry at multiple points throughout the value chain – having genuine impact on operational efficiencies, administration and technology platforms, in addition to new funds entering the market,” Ms Elkins concluded.
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