Industry funds now threaten retail

Industry funds represent a growing threat to the leadership of ‘for profit’ retail funds in the Australian mass superannuation market, according to an analysts report released by Credit Suisse.

The report, issued just days after an Australian Prudential Regulation Authority analysis also supportive of the value of industry funds, pointed out that industry funds have been gaining market share since around 2002 and that net flows to industry funds have been greater than ‘for profit’ funds for two of the past three quarters.

The analysts report suggests that beyond the current cyclical issues for listed fund managers such as weak investment markets and reduced net flows, there exists potential structural headwinds from industry funds gaining momentum given lower fees, better advertising and choice of fund legislation.

As well, it suggests that the Rudd Labor Government’s agenda to reduce superannuation could also play a role in generating significant margin squeeze.

The report noted that for the first time in 14 years, retail funds have been dethroned as the largest sub-sector of the superannuation market and that since 2002, retail funds’ market share has declined from 36 per cent to 30 per cent.

It said that this market share had been lost to small funds such as DIY and SMSFs, which had increased from 19 per cent to 32 per cent, and industry funds, which had increased from 14 per cent to 18 per cent.