Top-performing superannuation funds for the latest fiscal year include a number with assets that Australian regulators have suggested are too small to deliver adequate retirement outcomes at reasonable cost for members, according to a report by Melbourne-based investment consultant Frontier Advisors.
"Frontier's analysis demonstrates that even over the longer term, the correlation between performance and size is not conclusive," with asset allocation a bigger factor in determining outcomes, according to a Frontier news release Friday.
The Australian Prudential Regulation Authority is effectively saying "bigger is better, and we're saying" small funds can deliver strong performance, too, said David Carruthers, principal consultant and head of Frontier's members solutions group, in an interview.
While scale benefits are real, there are drawbacks to being big as well, Mr. Carruthers noted. For example, some funds in Australia have become too big to be able to get enough exposure to move the needle in attractive niche market segments — such as Australian small-cap equities or solar farms, he said.
For a behemoth like Melbourne-based AustralianSuper, the biggest industry fund with more than A$261 billion in retirement assets, investing in a small-cap Australian company would probably only make sense if it moved to take the company private, perhaps partnering with a private equity firm, Mr. Carruthers said.