Players in $1 trillion super club
Expect number to get bigger
AUSTRALIA’S largest superannuation funds will hit $1 trillion in assets within two decades, even without any further mergers bulking up their heft, according to a new KPMG report.
By the time AustralianSuper and peer Australian Retirement Trust – formed from the merger of Sunsuper and QSuper – join the $1 trillion club, which KPMG says will be in 2040, the nation’s pool of retirement savings will have nearly trebled to $8.6 trillion, the consultancy’s latest Super Insights report shows.
The $250bn AustralianSuper and $220bn Australian Retirement Trust already lead a handful of mega funds in the market: All up, 13 super funds control about 75 per cent of workers’ nest eggs.
Among this group, Aware Super, Hostplus and Insignia (formerly IOOF), will see a similar surge in size in the coming years, with their assets rising to between $400bn and $600bn over the same period, KPMG predicts. Further consolidation of the sector, meanwhile, could turbocharge the megafunds’ growth.
According to KPMG, while 13 ‘material’ (above $500m) mergers were announced between 2011 and 2016, the pace has picked up in recent years: there were 17 between 2017 and 2019 and a further 17 in 2020 and 2021.
“We will see the continued move to a handful of megafunds in the next two decades,” KPMG’s head of asset and wealth management, Linda Elkins, said.
Indeed, Ms Elkins expects further consolidation even among the megafunds themselves. “If AustralianSuper and Australian Retirement Trust really open up that (size) gap, then I think we might see two of the other larger funds merge. I think that’s quite likely, especially in the retail space.
“If it does happen, it will be for strategic reasons and to have the capacity to invest in new capabilities and new products and services for members.”
As the number of super funds whittles down – it stood at 144 by the end of 2021 – the big issue is not concentration risk, but where all the money is invested, Ms Elkins said.
“Rather than debate around concentration risk, I think maybe the more relevant aspect is just the size of the super industry compared to Australian GDP and the amount of capital that therefore is going to be needed to be invested offshore. Australia is just not big enough.”
Already, the biggest funds are bulking up their offshore operations in anticipation of phenomenal growth in the coming years: AustralianSuper, which says it can reach $500bn in assets by 2026, has staff on the ground in London and New York hunting deals, while Australian Retirement Trust, with a similar growth goal, is looking to establish an offshore footprint to boost its international prowess.
“I think that we will see more of this (need for offshore offices) simply because of the size of super versus the Australian investment landscape,” Ms Elkins said.