The playing field for small and mid-sized super funds continues to shrink.
According to KPMG’s latest superannuation transformation and consolidation report, the 12 months to October 2021 saw a total of 15 mergers within the superannuation sector.
While the report noted that this represents the highest level of merger activity KPMG had seen in a single year, they added that this consolidation mostly consisted of smaller funds being absorbed into larger ones.
From 2020 to 2021, the average size of the transferring funds shrank from $38 billion to just $4 billion. Meanwhile, the average receiving fund jumped from $44 billion to $76 billion.
KPMG superannuation advisory partner David Bardsley said that the firm expects this trend in consolidation among smaller players in the sector to persist.
“Currently, many funds are faced with the challenges arising from a lack of scale – and they are proactively investigating possible merger options in order to improve outcomes for their members.
Mr Bardsley said that recent concerns raised by regulators like APRA over mergers between funds with less than $30 billion in funds under management would drive additional smaller operators towards mergers with larger funds.
“So-called bus stop transactions are deemed less likely to deliver sustainable medium- and long-term benefits and mega funds look to deliver on the promise of past consolidation transactions,” he said.
Speaking at a recent Financial Services Council webinar, APRA executive board member Margaret Cole said that the regulator doesn’t have a “rigid” view of what size a fund needs to be to compete with mega-funds but predicted that smaller funds will continue to be at a disadvantage.
“Any fund with less than $10 billion, without some other redeeming feature, will definitely struggle to stay competitive into the future,” she suggested.
That being said, Ms Cole said that APRA doesn’t want to see trustees rushing into poorly planned, sub-optimal or “bus-stop” mergers.
“Our view remains that trustees of smaller funds should ideally seek to merge with a larger, better performing partner rather than another small fund – especially one that is also underperforming,” she said.
KPMG’s latest check in with the superannuation sector also raised concerns around how industry mergers are communicated to members.
The report found that only 20 per cent of merged fund members were aware that a merger had taken place.
Mr Bardsley said that there is a proven link between effective engagement with fund members and transaction awareness.
“Funds need to continue to build engagement across the entirety of their membership to build awareness of transactions and the potential impacts to their members,” he said.
