Super funds that innovate will thrive under oligopolistic structure

While superannuation fund mergers are heading towards an oligopolistic structure of around four to five mega funds, the industry needs to look at the next generation of funds with member centricity and understanding the heterogeneity of cohorts to be successful, according to a panel. 

Speaking at the Australian Institute of Superannuation Trustees (AIST) Superannuation Investment Conference today, Griffith University professor of finance, Michael Drew, said there was a misunderstanding of the heterogeneity.  

“For much of superannuation, we're in the market related payment business so a different liability stream [to banks with contractual payments] with a much longer tail,” he said.  

“I think how we see the next generation of super funds, with the member centricity, and understanding the heterogeneity of cohorts, even things like what we're seeing the debate against gender, Indigenous Australians, the casualisation of the labour market, all of us on the call today know just how difficult it is to get our arms around that even in a cohort sense.  

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“So, whilst I hear the arguments [oligopoly of four to five mega superfunds], I think the winners here are the ones who can tap into member needs and being able to provide the right services and products at the right part of the life stage. And that, to me is part of the great strategic challenge for trustee directors.” 

LGIAsuper chief executive, Kate Farrar, said even under oligopolistic structures like banks, there were still boutique offerings. 

“I definitely think it's very clear regulatory narrative and the government narrative is towards consolidation at scale,” Farrar said. 

“I think a lot of innovation, and a lot of niche offerings can thrive in that space, even though I don't necessarily think that we have protection of the regulator in the way that the ones that are too big to fail might have protection.” 

Spirit Super chief investment officer, Ross Barry, said there was a natural tendency of all systems to move towards greater concentration such as search engines (now mostly Google), and stock exchanges (100 US stock exchanges and now there was just two). 

“When you get highly concentrated systems the risk of contagion and collapses is much greater, hence the too big to fail thesis,” Barry said. 

“I think we need to be aware that there is a natural tendency towards that type of state. I don't think we will ever get to that as at the end of the day, we're delivering a service and an outcome for members and I think ultimately members will be dictate the outcome and the ultimate microstructure of the industry.”