Although superannuation funds are being pushed to merge to drive efficiency, many of them already rely on outsourcing certain functions which negates gaining an advantage from merging, according to Prime Super.
Lachlan Baird, Prime Super chief executive, told the Parliamentary committee on common ownership they can already achieve many of the benefits similar to those of larger funds.
“The cost of our investment function is no different to the larger [funds]… the performance [difference] is marginal,” Baird said
“The key driver behind investment performance is asset allocation it’s got nothing to do with how much money is in the market.
“At $6 billion or $200 billion or more, there is no measurable performance difference from the investment function.”
One of the arguments for mergers was the reduction in back-office costs and admin, but Baird said that can be achieved at smaller funds that were already outsourcing those functions.
“We outsource from the investment side to managers, they manage a lot more than what we do and a lot more than what the big funds do domestically and internationally, so that’s where you get the economies of scale through using those professional outsourced entities,” Baird said.
“Same with back-office and administration functions, we outsource to the same service providers as a number of the large super funds, so we get the same economies of scale though there as well.
However, smaller funds were still at risk of being boxed out from major unlisted investments, particularly if they did not use as external manager.
“The big funds will be competing with Future Fund and other sovereign wealth funds who don’t pay tax so that has a different dynamic with that investment decision,” Baird said.
“For us, we compete at the other end of the marketplace, we compete with other smaller super funds or high net wealth individuals.”