Consolidation - Super Review tracks the fate of funds

The Australian superannuation industry has continued the rapid consolidation which began nearly four years ago.

Super Review’s Top Super Funds Survey, conducted by research house DEXX&R, reveals that in the 12 months to April 2005 not only significant numbers of corporate superannuation funds disappeared off the radar screen but that a number of small to medium-sized industry funds are facing a similar fate.

When Super Review first started surveying superannuation funds in Australia according to membership and funds under management (FUM) it was possible to find 1,500 funds which met the appropriate criteria. By 2002-03 that number had dropped to 300 and in 2004-05 we struggled to find 100 funds which met our criteria.

The bottom line is that while our survey data counts 55 corporate super funds, there are now barely 40 which can be regarded as being independent, stand-alone entities. The remainder are, in reality, operating under the umbrella of master trusts such as Plum, Russell or Mercer or, alternatively, have shifted within the confines of some of the industry funds with public offer products.

What is significant about the findings of this year’s Top Super Funds survey is that while they have clearly pointed to the on-going consolidation within the industry, many senior commentators are suggesting that this process will accelerate as a result of choice of fund and trustee licensing.

Looking at the remaining stand-alone corporate superannuation funds it is significant that the five largest entities all boast more than $2 billion in FUM while a number still have less than $100 million in FUM. This suggests that there is still plenty of scope for further consolidation.

Ranked by FUM, Telstra Super ($7.7 billion) represents the most significant corporate superannuation fund followed by the Commonwealth Bank Officers’Superannuation Fund ( $5.8 billion) and BHP Billiton Superannuation Fund ($4.6 billion).

It is significant that both Telstra Super and the Commonwealth Bank Officers’ Super Fund grew out of public sector entities and have clearly maintained their strength in terms of FUM albeit that the level of their active membership has declined.

Looking at the industry funds, there is room for argument that the need for scale will force some of the smaller entities to find merger partners if they are going to be able to compete in the face of choice of fund and the tougher regulatory environment, including choice of fund.

In terms of both membership and FUM, the big retail industry fund REST leads the way as Australia’s largest industry fund with more than $7.6 billion in FUM and 1.4 million members. REST is followed by the ARF ($7 billion and 600,000), HESTA ($6.5 billion and 600,000) and Superannuation Trust of Australia ($6.1 billion and 550,000 members).

However, when it comes to the single equation of FUM, then UniSuper emerges at the head of the industry superannuation funds pack with $14.4 billion off a membership base of 450,610.

While most industry funds managed to fly above the survey radar by having more than $100 million in FUM plus substantial membership, a number did not make the cut suggesting that their futures may be uncertain in the new choice environment.

There were no surprises where public sector superannuation funds were concerned, with the NSW Government’s State Super once again emerging at the top of the list with $24.7 billion in FUM, followed by the combined weight of the Commonwealth’s CSS/PSS with more than $12 billion in FUM and then the Emergency Services Superannuation scheme with just under $9 billion in FUM.

While the survey has revealed the continuing consolidation which has occurred within the superannuation industry, it suggests that there has not been any significant shifts with respect to the service providers such as administrators, insurers and asset consultants.

Where administration services are concerned, the major players such as Mercer and Russell remain dominant within the corporate superannuation funds sphere, while SuperPartners, Australian Administrative Services, Pillar and Citistreet show through with respect to public sector and industry funds.

Significantly, a number of major funds maintained internal administration arrangements through the period, including UniSuper, Vision Super and Telstra Super.

Where Asset Consultants were concerned, Russell, Mercer and JANA were again dominant, with Frontier Investment Consulting showing through with respect to some of the public sector and industry superannuation funds.