“I think it will still happen but  the number of material mergers  is precious few,” he says. “The real  catalyst a few years ago was the  new licencing regime. There will be  increasing regulatory requirements  which will cause more talks.”  He notes that Jeremy Cooper  “took some stick” at last year’s  ASFA conference for saying he  thought there should be fewer  funds and they should exercise  more muscle in their dealings with  funds managers.  “But I thought he was on the  money,” Silk says. “But there’s no  point in getting bigger unless you’re  getting better.”  The flexing of muscle is in  at least part dependent on scale.  Bigger funds have bigger mandates  and therefore get more benefit from  the traditional fee sliding scale.  More importantly, perhaps, bigger  funds can invest directly in very  large projects and can afford to run  teams of investment professionals  who understand the newer asset  classes.  On the other hand, it is  more difficult for larger funds  to outperform in Australian  equities, say, where size works  against the investor. And with a  trend to alternatives, even large  clients struggled to get much of  a reduction in fees from their  alternatives managers prior to the  GFC.

Fiona Trafford-Walker,  the chief executive of Frontier  Investment Consulting, believes  that the three major themes for  super funds’ investments into the  future are: simplicity, Cooper, and  competition.  1. A move to more  simplicity. “We saw an incredible  move to complexity,” Trafford-  Walker says. “There will probably  be a retracement. You don’t need  to have a complex structure for  good returns. I think we’ll probably  have a cleaner asset allocation.  Sometimes avoiding the new stuff  is a good strategy. There will also  generally be more transparency.”  2. The Cooper Review.  Trafford-Walker believes this will  have a big impact, particularly on  the key issue of fees. “There will  be a lot more questioning of fees  and this will impact funds’ asset  allocation,” she says.  3. Competition. “The GFC  meant there was a focus on absolute  returns, but relative returns are alive  and well,” she says.

“Competition  among funds will continue to be an  issue. Peer risk is important. The  number of funds will decrease and  the number of managers perhaps as  well.”  As is often quoted, there are  more Australian equities managers  in the Mercer Australia sector  surveys than there are UK equities  managers in the Mercer UK  surveys. Trafford-Walker says there  are 155 products at last count from  about 120 managers.  “Australia is really an overserviced  market,” she says.  “You probably need only 40-50  [Australian equities managers]  rather than 100-plus. There are no  barriers to entry.”  Given that the total pool of  super money is likely to grow over  the next 20 years from its current  level of about $1.2 trillion to  between $4-5 trillion, Trafford-  Walker admits it may just be  wishful thinking on her part to  predict a decline in the number of  managers servicing the market.  But she is not alone. Academic  researchers Jack Gray and Ron  Bird, both linked to the Paul  Woolley Centre for Capital  Markets Dysfunctionality, with the  University of Technology Sydney,  are working on a paper which  says that the industry – namely  members – would be better off  with six or seven big super funds  only and perhaps the same number  of external managers.