A new report rates 'superannuation funds management services' as the safest industry for investors – but Tria Investment Partners’ Andrew Baker argues such an assessment is “too optimistic”.
IBISWorld’s Industry Risk Rating report revealed Australia’s top 10 ‘safe’ industries as well as the country’s top 10 ‘risky’ industries.
The risk rating measures the likelihood that investors or creditors will receive a negative return over a period of 12 to 18 months.
‘Superannuation funds management services’ received the lowest risk rating of 2.91, while ‘petroleum refining and petroleum fuel manufacturing’ was deemed the riskiest industry with a rating of 7.09.
The wealth management industry is projected by IBISWorld to record revenues of $16.65 billion for 2015/2016 with growth forecast for 14 per cent.
“Superannuation funds have significantly benefited from government legislation that sets minimum superannuation contributions for employers.
“With approximately $838 billion in funds currently under management, earnings from management fees have been increasing rapidly.
“The superannuation funds management services industry is expected to grow at a compound annual rate of 10.2 per cent over the five years through 2014/2015 and 8.1 per cent per annum over the next five-year period,” IBISWorld said.
But Andrew Baker, who is the managing director of superannuation consulting firm Tria Investment Partners, labelled the finding “too optimistic”.
Superannuation monies managed by third-party asset managers are not growing as fast as the industry as a whole, Mr Baker said.
As for the 14 per cent growth rate, he labelled it “an extrapolation of the past”.
“I don’t think it’s going to be reflected in the future experience. I think it’s going to be a much riskier place than this implies,” Mr Baker said.
Factors playing against external fund managers include investment internalisation by big super funds, margin compression and the growth of passive investment, he said.
“Life is tough in asset management at the moment, and there are plenty of people losing jobs and that will continue to occur. It’s a tough part of the industry.
“To say it’s the lowest risk industry is crazy,” Mr Baker said.