Small and medium-sized super funds argue size is not everything when it comes to performance and providing service to members, welcoming comments by minister of financial services Stephen Jones that the creation of large super funds may not be in the national interest.
“Minister Jones’ recognition of the important role of small and medium-sized funds in the sector is both welcome and timely,” said Julie Lander, outgoing chief executive of CareSuper.
“As we have seen from the banking industry, a superannuation sector dominated by a few mega funds will likely reduce consumer choice and result in homogenous investment strategies that concentrate risk.”
Under APRA’s classification, funds with less than $10 billion of assets under management are termed small, funds with between $10 billion to $50 billion are classified medium and large funds have assets of over $50 billion.
Jones is keen to avoid the concentration risk in the banking sector, currently dominated by the big four domestic banks. “What is the optimum size or shape of the industry is unclear. But I don’t want us to replicate what we have in the banking sector,” he told the Sydney Morning Herald this week.
“I think there is momentum towards larger funds but there should a space for small and medium-sized ones as well.”
Jones expects to issue a discussion paper next year on the issue of mergers and size of funds.
Performance and service matter
Smaller-sized funds argue their financial performance stands up to scrutiny. Super Ratings rankings for the 2022 financial year show over 12 months, seven out of the top 10 performing funds fell below the $30 billion threshold.
CareSuper’s Balanced option ranked sixth in the overall league table, demonstrating that “it can, and does, outperform funds many times larger through our dual-purpose active investment approach that differs to the common investment strategy that most mega funds deploy” said Lander.
Smaller funds also hold themselves up to high service standards as they typically have strong levels of engagement with their members and are able to service them more intimately.
“In our view scale does not always guarantee member satisfaction. Smaller funds have a unique understanding and connection with their members and thereby are better placed to deliver improved member outcomes that better meet their needs,” said Andrew Proebstl, legalsuper’s chief executive. The $5 billion fund manages the retirement savings of over 41,000 members in the legal community.
The $25 billion Spirit Super, the result of the merger of Tasplan and MTAA Super, has recently been recognised for its member experience by Customer Service Benchmarking Australia.
“Spirit Super is focussed on delivering our hard-working members the value they deserve through an industry leading level of member experience, competitive fees and strong long-term returns,” said chief executive Jason Murray.
“Our size gives us agility – big enough to make a difference and small enough to care.”