The superannuation system at large is heading towards balance after years of commercial- and regulatory-driven consolidation, according to The Conexus Institute’s 2025 State of Super report.
“Even though it sometimes feels like things move slowly in the APRA-regulated super system, we nevertheless see some clear trends,” the report says. “A more balanced system has emerged with three segments (mega funds, very large funds, and large funds) each having significant market share, aided by the creation of a new large fund (Equip/Telstra). The 16 funds in these three segments account for nearly 87 per cent of assets.”
Both AustralianSuper and Australian Retirement Trust (ART) experienced “above system growth” off the back of strong natural flows (contributions less benefit payments). Other growth stories tended to be concentrated among smaller funds, with the likes of Netwealth and HUB24 receiving strong competitive flows (defined as the net outcome of rollover activity as members switch between funds).
But while The Conexus Institute is “largely agnostic about scale”, APRA’s data and regulatory activities, as well as governance and the requirements of the Retirement Income Covenant, weigh more heavily on smaller funds, and growth “can be needed most to achieve scale benefits”.
The funds that could merge straddle two groups, the report says: funds with low scale and low flows that could face more business-related pressures and regulatory scrutiny; and funds where a merger might be strategically beneficial even if there is a “defensible case” to continue as a standalone fund.
While authors David Bell and Geoff Warren don’t name specific funds, examples of funds in the first group include Vision Super, Russell Investments, Prime Super and NGS Super, while the second group includes Brighter Super, CareSuper, Equip, Australian Ethical and Future Super.
But Bell and Warren also considered whether the fund had already recently merged, experienced a change in its ownership structure or strategic model and whether it was an “integral component” of a large business or part of a complex structure.
The “realistic number” of merger targets is likely also smaller after accounting for a number of other factors, the report says, like fund type. It would be difficult for a profit-to-member fund with a relatively small option range to merge with a platform-based retail fund (though not, as Bell and Warren point out, impossible, as evidenced by Brighter Super, which was created by mergers between LGIAsuper, Energy Super and Suncorp Super).
Applying a “rules-based approach” taking these factors into account produced a total of 13 funds managing circa $140 billion in assets.
“(That) amounts to less than 6 per cent of industry assets,” Bell and Warren wrote. “This makes it reasonably likely that the industry composition by fund size … will change only slightly over the next few years,” Warren and Bell wrote. “However, we leave ourselves open to being well off the mark including (say) two large funds merging to join the mega-fund brigade. We are quite unaware of conversations taking place behind closed doors!”
Then there’s the fact that many of the funds that could merge may have already done so and are still “digesting” the merger. The service and governance challenges faced by the industry may be significant disincentive for taking on the complexity of a merger. Niche funds – like those catering to sustainable investment or specific age cohorts – might also want to link up with funds with the same strategy.
“As the industry consolidates, many of the remaining funds may target specific market sectors,” the report says. “Meanwhile the universe of candidate consolidation partners that complement a fund’s growth strategy may be shrinking (the alternative of a merger between funds with large differences in growth strategies may take a long time to identify and implement a viable growth strategy).”
These inhibiting factors raise the question of whether some funds could wind-up “like the people nobody wants to dance with at the ball”, Warren tells Investment Magazine.
“This could be an issue from the point of view of APRA, and what they might do to help try and clean things up.”
Warren also differentiated between “true” mergers, where funds must integrate their systems and business operations, and “acquisition” style mergers where members are more or less just transferred to a new fund – which is significantly easier than bringing together two funds.
“Can (APRA) lean on a big fund to take them? Without a strategic logic, funds might still want to take them on just to get additional assets under management. I suspect ART for one seems to be set up to do this, as evidenced by their pedigree; Sunsuper used to be an employer-based fund, collecting a lot of things… they would’ve been used to taking on things from different employers and integrating them. (ART) has taken small funds like Alcoa and shoehorned them in and transferred the members. The original identity disappears.”
“If you’re somebody in the middle of the range – $10 billion to $20 billion – that might be a little bit more complex. I do think there’s a risk that could happen and it wouldn’t be good for members, so there is the question of what the system does to mop them up.”
