Mega funds will dominate the super system by 2025: JP Morgan
Superannuation fund mergers could reach 20 a year over the next three years, possibly leaving Australia’s super system with 50 funds by 2025, according to a new report on the future of superannuation from the UK. financial services giant JP Morgan.
Half of 11 pension fund executives, who collectively manage $1 trillion in assets, and 56 respondents to an industry-wide survey, expect mergers to rise from record highs current ones, reducing from 174 funds to 75 funds by 2025.
A quarter of executives believe these mergers will leave only 50 funds in play, according to the report.
The inauguration The future of pensions report interviewed executives from Australia’s largest industrial and retail funds, including AustralianSuper, Cbus, HESTA, Aware and Qantas, as well as an industry-wide survey of executives from most funds regulated by the ‘APRA conducted with the Association of Superannuation Funds of Australia (ASFA).
A sector at the crossroads
JP Morgan, head of platform sales, Securities Services, Nick Paparo, said the report showed an industry at a crossroads with twin moves towards consolidation and investing in technology to continue engaging their members.
“The purpose of mergers is to provide scale. That’s ultimately what drives him,” Paparo said.
While the report showed half of respondents expected 100 funds to merge over the next three years to exit mega and “sub-mega” funds, smaller funds would also become more niche, it said. -he declares.
“Scale can be leveraged by funds of all sizes, especially with smaller funds that provide a niche service to their members, primarily the provision of technology and automation,” he said.
“Funds need to address these key challenges to ensure they continue to meet community and member expectations.”
Strong M&A activity
In 2021, 15 mergers or alliances were announced in the Australian market, the highest activity in a single year.
Creating scale (84%), maintaining long-term stability (59%) and the regulator encouraging underperforming funds to merge (54%) were the top three reasons to merge, respondents said.
State Super chief executive John Livanas, one of 12 executives who took part in hour-long interviews for the report, said larger funds would dominate the market, but size was not always synonymous with success.
“My feeling is that, just like most markets moving towards maturity, the top five to ten superannuation funds will eventually hold perhaps the majority of the investment market share,” he said. declared.
“Then, in the absence of regulatory constraints, there is likely to be quite a long tail of much smaller funds.”
Respond to new regulations
Meanwhile, complying with new regulations has been the biggest challenge for fund executives over the next three years, with 64% of respondents putting this above member retention and attraction and performance. investments, according to the report.
In particular, 63% said the APRA Superannuation Data Transformation project would increase costs, while 83% of respondents said changes to portfolio disclosure rules would not be a helpful measure for fund members to take decisions.
Tackling climate change was high on the leaders’ agenda, with 48% of respondents believing funds should be directed to a net zero goal.