Defying the odds - AAS side-steps the administrator sceptics

When Telstra in mid-2004 acquired Kaz the transaction generated plenty of speculation about the future of Kaz subsidiary, Australian Administration Services (AAS).

Now, nearly 10 months down the track, the Super Review Top Super Funds survey has revealed that while there have been a number of significant changes occurring in the superannuation administration arena, AAS has managed to largely defy the sceptics.

The scepticism about the future of AAS was based on a belief that superannuation administration represents a highly complex area and one that would not be readily understood by Telstra. The case for AAS was not helped when it controversially lost the big Australian Retirement Fund contract to Superpartners after having been the fund’s administration from its inception in 1986.

Perhaps that explains why Kaz/AAS has been allowed to continue to operate relatively independently under the Telstra umbrella ensuring that the company has been able to retain major clients such as Australia’s largest industry super fund, REST.

However, Kaz was able to drive its message home to the sceptics and offset the damage caused by the ARF loss earlier this year when it announced that AAS had managed to gain a two-year extension to the CARE Super administration contract just a fortnight after confirming that it had won the Christian Super mandate previously held by Mercer.

What the Super Review Top Super Funds survey reveals about the administration sector is that a number of Australia’s largest industry and corporate super funds were continuing to self-administer in 2004-05, including the $14.4 billion Unisuper and the $7.7 billion Telstra Super.

UniSuper chief executive officer, Anne Byrne acknowledged that the fund’s decision to continue with self-administration was owed in part to the origins of the fund in terms of representing people employed by universities and other academic institutions.

She said the fund’s administration platform was compatible with those used by the major universities.

The administration arena was also affected by the decision of the big NSW Local Government and Energy Industries Superannuation Schemes to exit their arrangement with Mellon Human Resources to join FuturePlus Financial Services — the funds management and services company jointly owned by the two schemes.

The chair of the Local Government Scheme, Peter Woods said the decision to move to FuturePlus had followed a review of available services and technologies.

He said the decision had also been influenced by the licensing agreement entered into with Vision Super in Victoria to use their ‘Classic Software’ specifically designed to administer funds.

The Top Super Funds survey also reveals the degree to which Mellon’s decision to exit superannuation administration affected the overall texture of the sector, with the survey suggesting it generated real benefits for Mercer.

Mellon Human Resources consulting showed up in the survey as having a modest but nonetheless significant presence with respect to providing services to corporate and public sector funds meaning that its decision to sell the business to Mercer helped give that organisation scale.

Mellon announced in March that it had signed a definitive agreement to sell the Human Resources and Investor Solutions business to Mercer, with a spokesman saying that the sale of the business had been subject to a tender process, with the Mercer offer considered to be in the best interests of Mellon and the clients and staff of the Human Resources and Investor Solutions business.

The bottom line for Mercer was that the transaction delivered a significant number of clients, giving the organisation some much-needed scale in the corporate superannuation arena where Russell was being increasingly seen as a dominant player.

While the toughest competition for superannuation administration tenders through 2004-05 occurred between the major players such as Superpartners, AAS, Pillar and Citistreet, Aon Consulting emerged as an increasingly important competitor through 2004-05.

At least a part of Aon’s success in the superannuation administration arena was owed to the wins it chalked up in terms of the corporate superannuation outsourcing stakes, but it also picked up the $260 million Caltex Australia Superannuation Plan from Mercer following a lengthy tender process.

While fewer of the major superannuation funds are expected to be reviewing their administration needs over the next 12 months, there is expected to be no diminution in the level of competition between the administrators.