A focus group conducted by DST, with participants who included custodians, super funds and industry bodies, indicated that the number of super funds will halve over the next five years.
Most participants agreed that compliance costs were influencing the decision of smaller funds to consolidate with larger funds.
Speaking in Sydney yesterday, DST Global Solutions head of business development in Australia and New Zealand, Rhys Octigan, listed a number of factors that are affecting super funds and driving consolidation, including: independent directors; funds ceasing to be defaults; the need to provide members with a better experience; and the need to drive better deals with providers.
Mr Octigan expects there will be 10 to 12 ‘megafunds’ by 2019, each holding $100 billion in assets under management – with a rough split between industry and retail funds.
“You’ll see a small tail of specific purpose funds but the middle size funds, the $2 to $10 billion funds, will disappear,” said Mr Octigan.
For funds to compete against other mega-funds or retail funds, he said, they will need to grow in order to spread costs.
“If your compliance cost is a relatively fixed amount of money and you’ve got 100,000 members versus one million members, clearly the cost can be spread better,” said Mr Octigan.
According to him, for a smaller fund to continue being a default fund it will have to compete well against the larger funds.
“If it finds it can’t, it will merge,” he said.
Mr Octigan added it will be “interesting” to see whether there are many mergers between industry and retail funds in coming years.
