Consolidation of superannuation funds will be slower than expected as many medium to large-sized funds struggle to find the right candidates to merge with, according to State Street.
"The pace of short-term consolidation will be slower than people expect and certainly slower than what [superannuation system review chair] Jeremy Cooper has advocated," the firm's head of global markets and global services in Australia and New Zealand Ian Martin said.
His comments were part of a new State Street report that examined Australia's $1.2 trillion super market.
"So far it has only been the 'low-hanging fruit' that we have seen merge because it made sense and was very complementary, but there will be challenges in merging larger funds because of differing investment policies and philosophies," Martin said.
He said if a fund did not want to merge, it could avoid doing so indefinitely unless there was regulatory pressure or it became uncompetitive and started losing members.
"When Jeremy Cooper suggested in a speech to an industry association during the consultation process that he saw a need for the industry to radically reduce the number of funds in the market, he raised a red flag for many trustees and advisers who perceived it as a threat of forced consolidation," he said.
"There is a consensus in the industry that forced consolidation is impractical because there is effectively no mechanism to buy super funds under the current architecture, in which funds are managed by independent boards and trustees.
It was more likely there would be continued natural consolidation, particularly in some of the sectoral industry funds where natural alignments of member interests and issues emerge, Martin said.
The State Street report also suggested that as the super industry's assets continued to grow, they would diversify into new assets and geographies.
