The Your Future, Your Super reforms will have a “dramatic effect” on asset managers as super funds may opt to in-source their investment if their asset manager fails to perform, EY believes.
Under the reforms, which were passed in June, super funds would be subject to an annual performance test.
Those which failed this would need to inform their members of the underperformance and provide them with a super fund comparison tool. Funds that continued to underperform and failed two consecutive annual underperformance tests, would not be permitted to accept new members. These funds would not be able to re-open to new members until their performance improves.
This could lead to problems for asset managers as they would be under more scrutiny from their super fund to perform and find themselves taking fewer risks in order to avoid potential underperformance.
Rita Da Silva, Oceania asset and wealth management leader at EY, said: “The impact of Your Future, Your Super will have an effect on asset managers thanks to stapling and heatmaps. It will have a dramatic effect on the asset management industry as they will be scrutinised on the performance. Will super funds just opt to in-source their investments if the asset manager is failing to perform?
“There is a risk that now they are all being measured against a benchmark, that firms will be too scared to take risks to beat that. They won’t want to find themselves either plus or minus the benchmark, they will only want to be in line with it.”
Super funds were already moving towards in-sourcing their investments as they rationalised and Da Silva said they were attracting talent away from asset managers to do so.
“Super funds are already choosing to do Australian equities and global equities in-house so asset managers in that space might need to re-align their offerings to not just be product providers but solution providers,” she said.
“There might still be a place for asset managers but they will need to differentiate themselves.”