Five to 10 mega super funds on the horizon

Australia will end up with about five to 10 superannuation mega funds in the future as smaller funds merge with larger players who will be jostling for dominance, according to PwC.

Speaking at a webinar, Naresh Subramaniam, director – investment advisory at PwC Australia, said he had been involved in the due diligence phase of about 20 mergers in the past two to three years and that mid-tier funds would trend toward amalgamating into a mega fund.

“We’re going to see these mid-tier funds starting to get together to aim at becoming sustainable and aim at becoming a mega fund,” he said.

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He said he had witnessed mid-tier funds starting to discuss mergers, pointing to Australian Prudential Regulation Authority (APRA) pressures and rising costs as what was driving the trend.

Subramaniam said it would be complicated to conduct due diligence for the mid-tier mergers as it was likely there would be two to four entities attempting to mix into one.

He said unit pricing and equivalency, the APRA term to make sure members were not worse off from a merger, were the critical elements in PwC’s due diligence process analysis.

Conducting equivalency analysis meant looking at the super fund’s products and investment options, Subramaniam said, and analysing them from an asset allocation exposure or a growth asset exposure to see where there was commonality so they could be brought together.

Mergers that were confirmed this year so far were Equip and BOC Super, Hostplus and Statewide Super, Australian Super and LUCRF Super, QSuper and Sunsuper, LGIAsuper and Energy Super, Hostplus and InTrust Super, Toyota Super and Equipsuper, and Tasplan and MTAA.

There had also been discussions between Sunsuper and Australian Post Super, Aware Super and VISSF, and Hostplus and Maritime Super.

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