After recent mergers and if further planned mergers proceed, Australia’s superannuation landscape will consolidate to 12 funds with assets under management of more than $50 billion each – the largest three by a considerable margin being Commonwealth Super Corporation, the new QSuper and Sunsuper combined entity and AustralianSuper all with more than $191 billion in assets.

The next nearest fund by size, after the top 12, will have $26 billion in assets – below APRA’s line in the sand of $30 billion that out-going deputy chair Helen Rowell recently opined to be the minimum size for a fund to remain competitive.

It’s the middle ground of funds with between around $25 billion and $50 billion of assets under management which are disappearing.

Further mergers are unlikely to create any more $50 billion-plus funds in the near term.

The most obvious path to create an additional $50 billion-plus fund is for two $20 billion-plus funds to merge together. The structure of some funds makes a sizable merger complex. For instance, Mercer super has a strong focus on corporate super and operates as part of an integrated broader business model (nonetheless Mercer Super Trust integrated Virgin Super). Telstra Super is a corporate fund (which also allows family members to join) which may constrain its merger options.

Beyond Mercer remains Together (the merger between Equip Super and Catholic Super), LGIS Super (merging with ESIS and taking on Suncorp Portfolio Services) Care Super, and Spirit Super (which is the merger between MTAA and Tasplan). It is likely difficult to consider further mergers while completing existing mergers, though Leanne Turner says Spirit Super is open to discussions.

Beyond this group it would require multiple rounds of mergers and realistically a three-year process to create a $50 billion fund. And during that period the funds may fall behind other groups in important areas such as operational efficiency and retirement solution development.

But it’s not all bad news for the vast majority of Australia’s super funds who track below the $30 billion in assets line. KPMG’s national section leader for asset and wealth management Linda Elkins said in a recent interview with Investment Magazine that it’s likely that smaller, niche funds with unique offerings would survive alongside the mega-funds with the middle ground in danger of being swallowed up.

Data source: APRA data as at June 30, 2020. As a data check and to account for corporate super arrangements we take the maximum of total assets (source: Annual fund-level superannuation statistics) and connected MySuper assets (source: Quarterly MySuper statistics).

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