Is APRA over-stepping the mark on fund mergers?

The Australian Prudential Regulation Authority (APRA) has signalled it not only wants to apply regulatory pressure to force fund mergers, it wants to influence which funds merge with which.

The deputy chair of APRA, Helen Rowell showed the regulator’s hand when she suggested that some of the superannuation fund mergers currently on foot might not be to APRA’s liking.

Her words come as superannuation funds in areas as diverse as transport and electricity generation have signalled their merger intentions, along with Media Super moving to merge with the Cbus and hospitality-focused fund, Club Plus merging with mega-fund AustralianSuper.

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While APRA has been openly encouraging mergers, Rowell’s statement to the Conference of Major Superannuation Funds (CMSF) represents the first time the regulator has openly revealed the degree to which it trying to influence the texture of mergers.

Rowell openly stated that some of the current mergers being discussed were not to APRA’s liking.

“Over the past eight years, about 70 APRA-regulated funds have finalised mergers, and there are currently around a dozen potential mergers under consideration that we know of,” she said. “While this is welcome, we’re not convinced all of these mergers are producing a new entity that has either the governance capability or the scale to be sustainable over the long-term.”

“The emerging industry view seems to be that any fund with less than around $30 billion in assets under management is increasingly going to be uncompetitive against the so-called ‘mega-funds’,” she said.

“While there will inevitably be debate about the threshold level of assets needed, we agree with the sentiment.

“Smaller, underperforming funds would ideally consider merging with a larger, better performing partner rather than another small fund – especially one that is also underperforming. APRA doesn’t intend to let perfection be the enemy of the good. But we expect trustees to consider whether a small fund to small fund (or bus-stop) merger is going to tackle underlying issues or just be a temporary stop on the way to the ultimate destination of sustainability.”

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