Super mergers lead to unintended common ownership issues

As the Government pushed the superannuation sector to merge and consolidate, a likely consequence will see fewer industry players controlling the majority of capital, putting it at odds with the capital concentration and common ownership in Australia enquiry.

During hearings on the enquiry, Coalition MP Tim Wilson asked the Australian Prudential Regulation Authority (APRA) if this was indeed a potential consequence.

“In light of the fact we have a clear direction of Government policy which is at least leading in part to consolidation of superannuation funds… you accept there’s serious potential this could be a risk into the future?” Wilson said.

“We know from historical example, when you get significant concentration of capital in the hands of a small number of parties… it gives an incredible amount of power, you would accept that?”

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APRA chair, Wayne Byres, confirmed this indeed a likely consequence of the merger regime.

“Increased concentration through superannuation is the likely outcome – the implications of that is an open question,” Byres said.

“All of these things are questions of degree, the general proposition I’m not disagreeing with.”

Data from APRA showed APRA-regulated super funds held assets valued at $2.3 trillion, with $500 billion in Australian listed equities.

Although that $500 billion was a fraction of its total assets, it was roughly 20% of the market cap of the Australian Securities Exchange (ASX), according to its data.

“This percentage share has not shifted materially over the past five years, although given the consolidation of the superannuation sector the holdings are held in a smaller number of (on average, larger) funds,” Byres said.

“As the size of the superannuation industry continues to grow, both in absolute terms as well as relative to Australian gross domestic product (GDP), and an increasing number of large superannuation funds emerge from ongoing industry consolidation, the importance of superannuation funds as investors in all types of assets will likely grow.”

Byres highlighted the importance of the super industry raising capital during market downturns and the potential repercussions if this capital could not be accessed during tough economic periods.

“On the whole, Australian and international equity investors have generally been supportive of Australian financial institutions seeking to raise new capital,” Byres said.

“During the COVID-19 period, for example, a number of capital raisings were undertaken by Australian financial institutions (e.g. NAB, QBE, IAG, BoQ), which were well supported by institutional investors.

“In a number of cases, Australian superannuation funds were an important and material source of new capital, being some of the largest individual investors in the new capital raisings.

“This experience mirrored the Global Financial Crisis (GFC), when the superannuation sector was an important source of new capital for the rest of the financial system (and the broader economy). 

“APRA would have concerns from a stability perspective if there were developments that meant that capital would become less accessible when needed, particularly in times of stress.”