Australia’s retirement fund industry is set to be dominated by $100 billion-plus “mega-funds,” according to a new report from auditing giant KPMG.
The superannuation industry is undergoing a period of consolidation that will see the creation of 12 super funds, with each managing over $50 billion in assets.
In 2019-20, five mergers were announced between existing super funds, and from June 2020, a further seven tie-ups are expected.
Together the 12 funds to emerge will control 76 percent of managed assets in Australia, and 77 percent of member accounts, according to KPMG’s Super Insights 2021 report.
Of those funds, five will become “mega funds” controlling over $100 billion in assets, including the QSuper-Sunsuper tie-up, Australian Super, the IOOF-MLC merger, Aware Super, and AMP.
“Mega funds” will control 47 percent of managed assets in Australia and 43 percent of member accounts.
Linda Elkins, KPMG national sector leader of asset and wealth management, noted that there would be a widening gap between larger super funds and the rest of the industry and cautioned smaller players to find a niche they could service.
“As we see continued consolidation across the industry, mega funds will emerge as some of the largest, most important, financial services organisations in Australia,” she said in a statement.
“The largest funds undergoing merger activity will face the greatest level of complexity as they grapple with multiple legacy operating models, a significant regulatory change agenda, increased transparency, and reporting requirements,” she added.
“With mega funds’ brand awareness and market share continuing to rise, smaller funds will need to find their niche and ensure they are effectively communicating their value proposition to members.”
Elkins noted the impact COVID-19 had on the industry but said super funds were recovering with the assistance of JobKeeper.
Laura De Zwaan, lecturer and expert in financial planning at Griffith University, said consolidation had been on the agenda of the super industry for years, as increased scrutiny of underperforming funds puts pressure on companies to merge.
“Consolidation does not necessarily bring better outcomes, but lower fees do, and that is the goal of these consolidations—better financial outcomes for members,” she told The Epoch Times.
De Zwaan said smaller funds would naturally struggle to compete with larger funds in the future.
“Smaller funds are more expensive—they just don’t have the negotiating power. Being more expensive means they are going to underperform compared to mega-funds,” she said.
“I think there is a place for smaller funds, though,” she added. “I think of people with particular religious beliefs and funds such as Christian Super or Crescent Wealth—these funds are highly unlikely to ever be large, but they may have important representation for certain people. Similarly, other values-based funds could be important for those reasons.”