There hasn’t been a good political stoush in the superannuation industry for some time. The main game in recent years has been adequacy, with debate involving not whether we should be saving more but, rather, how we go about it. Enter Jeremy Cooper, drawing the ire of new IFSA chief executive, John Brogden, for perhaps jumping to conclusions before he has completed his inquiry into the industry – not due until the middle of next year.
Cooper was expansive last month during his speech at the ASFA conference, suggesting the funds management industry was wagging the superannuation dog and that further massive consolidation among funds would be a good thing, for instance enabling more co-investments in big infrastructure projects. A total of 25 funds could be an aim.
It is difficult to argue with either point. According to figures from AIST, there are about 80 funds with more than $1 billion under management, out of a total of about 300 APRA-regulated trustee entities. The total money in not-for-profit-run super funds is about $350 billion, or roughly one-third of total super money.
Watson Wyatt Worldwide has a form of best practice manual based on the operations of 10 big pension funds and sovereign wealth funds, in which it categorises funds into three levels. Level one is a minimalist low-cost fund with mostly outsourced investments and level three is the full monty, with empowered internal investment staff overseeing a wide range of investment types. Level two is somewhere in between.
Watson Wyatt’s global head of investment content, Roger Urwin, who visited Australia last month and got a copy of Cooper’s hand-written speech notes, says that the minimum size for a level three fund is between US$2-3 billion. According to the Top1000Funds. com database (owned by Conexus Financial, publisher of this magazine), there are 30 Australian super funds with more than US$2.2 billion under management, which would have the capacity, therefore, to become level three funds for world’s best practice.
Most of the remaining Australian funds probably fit into the uncomfortable middle ground of level two – not being particularly low cost and not being particularly good at overseeing a sophisticated investment structure. That is not to say that these funds are not currently doing a good job. Certainly, compared with overseas counterparts of a similar size, they are streets ahead in sophistication. But in order to achieve and maintain a level commensurate with world’s best practice, the small Australian funds may well struggle in the future.