APRA wants more mergers

The prudential regulator is pushing for more superannuation fund mergers but says it does not want to see trustees rushing into “poorly planned or suboptimal mergers”.

In a speech delivered to the Financial Services Council (FSC), The Australian Prudential Regulation Authority (APRA) executive board member, Margaret Cole said it was “unnecessary” to have 140 funds with 43,000 investment options.

“Too many funds and investment options are not sufficiently different in terms of their product offerings and features to justify the duplication, confusion and inefficiency,” Cole said.

“While relying on organic growth may be an option for a small number of unique funds, I doubt there are many funds, large or small, that don’t understand the trajectory the industry is on, or are not seriously looking at how they can get bigger.

VIEW ALL

View all

“While we encourage this, what APRA doesn’t want to see are trustees rushing into poorly planned or sub-optimal mergers. We’ve previously advised trustees against pursuing ‘bus-stop’ mergers, which only take them part of the distance they need to travel.”

Cole said smaller funds should seek to merger with larger and better performing partners rather than another small fund, especially one that was also underperforming.

“A measure of caution is also needed among larger funds seeking merger partners. Over the past few years, we’ve noticed some larger funds becoming what you might call ‘serial acquirers’, taking over one smaller fund after another, and often moving on to a new deal before bedding down the previous one,” she said.

“This approach carries risks that the integration of the funds into a single entity is not as efficient as it could be. Given the time and cost involved in executing a merger, it’s vital the benefit to members isn’t squandered through poor execution or deferral of the integration needed to avoid problems down the track.”

Cole noted retail funds, in particular, should consider consolidating their own product lines as choice of features and investment options worked against delivering economies of scale.

“Consolidating those funds is both an important and necessary way of achieving greater financial and operational efficiencies, which should hopefully flow through to improved outcomes for members,” Cole said.