Superannuation: focus on fees

It was a good year for industry superannuation funds with strong inflows, which can be partly attributed to a controversial advertising campaign.

Industry Fund Services executive chair Garry Weaven says growing interest in industry funds will continue, although a downturn in performance might slow growth.

“Obviously [investment] market conditions are related to the performance of funds and the long-term future of funds,” he says.

“I expect conditions will still allow solid growth for industry funds this year.”

Weaven says if there is a downturn in the market it will be the retail super funds and smaller master trusts that are more likely to suffer.

“Downturns tend to put pressure on the retail funds as people can see how much the costs really are,” he says.

“Currently, with funds returning 12 to 14 per cent, people don’t worry if their fees have gone up by half a per cent.”

This will also apply to smaller master trusts as they lose mandates for poor performance and fees become an issue.

Weaven says people are becoming more interested in their super funds and are starting to look at areas such as fees, although not so much in booming share markets.

“If the markets go sideways this year then it will hit the high cost players in superannuation funds,” he says.

Another reason for the growth in super is people are realising the sector is a good way of saving.

“There have been a lot of people writing about using superannuation to save and that is working,” he says.

Last year there were a number of mergers among industry funds and Weaven expects discussions will continue with players in the sector.

“I have no doubt there will be discussions about merging, but I don’t expect we will see any actual mergers during the year,” he says.

The decline in corporate funds will continue, as Weaven believes it will become harder to run funds with less than $1 billion of assets.

“Funds with less than $1 billion will have difficulty accessing some investment opportunities such as infrastructure and off-market capital raisings,” he says.

“However, I do believe there is still a future for some small funds that operate in niche markets.”

Accessing these investment opportunities will be a focus for the larger superannuation funds during the year as they continue to chase new investments globally.

For Australian funds there is a continuing demand for assets and this is forcing them to look offshore for new opportunities.

“We will see more investing by superannuation funds in many asset classes around the world as they become significant clients in the global wholesale market.”