Super industry could fall to less than 75 funds by 2025

The number of superannuation funds could fall to less than 75 by 2025, according to J.P. Morgan, as merger activity continues to increase.  

In a report on the Future of Superannuation, the firm surveyed 12 executives from 11 major superannuation funds including Kristian Fok, Cbus chief investment officer, Kelly Power, CEO of Colonial First State Superannuation and Bernard Reilly, CEO of Australian Retirement Trust.  

The pace of activity in the super space was a notable topic and half of the executives surveyed expected it would accelerate in the coming years. 

“Half of industry executives believe the pace of mergers, which is already at record levels, is set to accelerate over the next few years. Almost one-quarter believe there will be fewer than 50 funds by 2025, which would mean two-thirds of today’s funds disappear,” said Nick Paparo, head of platform sales-securities services at J.P. Morgan.

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“There were 15 mergers or alliances announced to the market in the year to October 2021 – the most activity ever seen in a single year. If the number of funds declines to fewer than 75 over the next four years (by 2025), this could consistently result in 20 mergers or more a year.” 

Commenting on the finding, John Livanas, CEO of State Super, said: “My sense is that, just like most markets that evolve to maturity, the top five to 10 superannuation funds will end up with perhaps the majority of the investment market share. Then, absent regulatory constraints, it’s likely that there will be a fairly long tail of much smaller funds”. 

Reasons given for merger activity included to increase scale (83.9%), to maintain long-term sustainability (58.9%) and because a merger was encouraged by the regulator (53.5%) particularly as the Australian Prudential Regulation Authority had said funds with less than $30 billion would be uncompetitive. A merger could also be a driver of member benefits. 

However, HESTA chief operating officer, Stephen Reilly, said it was not always universal benefits from a merger and that small funds could find ways to operate without a merger. 

“Technologically-advanced funds like HESTA are going to draw most of their scale from the cloud and from data automation. I think that the way we engage with members will be increasingly predictive-driven and we are going to be anticipating questions and engagement before the member even thinks to log in or pick up a phone. I think that our relationship with members will be more personalised, more contextualised, more social and instant. 

““If you’re on a modern technology enhanced platform, you’re able to tap into the economies of scale in the cloud, and that is going to make a big difference to your efficiency and responsiveness.”