News that two of Australia's largest superannuation funds could combine to forge a new industry leader points to a pickup in industry consolidation and the prospect of evermore challenging conditions Down Under for money managers.
Market veterans said Brisbane-based heavyweights QSuper, with A$113 billion ($77.1 billion) in assets under management, and Sunsuper, with more than A$70 billion, have been discussing a tie-up now for more than three months.
In a Nov. 4 news release, the two funds confirmed "preliminary, non-binding discussions about a possible partnership," driven by their "absolute responsibility" to act in the best interests of members.
David Fagan, a spokesman for QSuper, declined further comment. Sunsuper spokeswoman Catherine Hughes didn't respond to repeated calls.
The QSuper-Sunsuper news comes as Australian regulators have been pushing for industry consolidation, leaving super funds facing "a lot of heat" to merge, noted Alex Dunnin, executive director, research and compliance, with Rainmaker Group, a Sydney-based financial research and publishing firm.
For example, a Productivity Commission report in January on the efficiency and the competitiveness of Australia's superannuation system concluded that "evidence of economies of scale is compelling" and even with the ranks of institutional super funds dropping to 217 from 650 in just over a decade, "significant unrealized economies of scale remain." Institutional superannuation funds hold more than A$1.8 trillion in assets.
In recent years, mergers have more often than not involved smaller funds.
The current year has seen funds in the A$10 billion range combining or considering doing so. In May, A$16 billion Equip Super merged with A$9.7 billion Catholic Super. In July, A$13 billion MTAA Super and A$9.5 billion Tasplan Super signed a memorandum of understanding to explore a merger. And in September, Hostplus Super, a A$42 billion fund, absorbed Club Super, a smaller fund with A$600 million in assets.
In July, meanwhile, two big players — First State Super, a A$96 billion fund, and VicSuper, a fund of A$23 billion — agreed to merge by mid-2020 to form a A$120 billion heavyweight, subject to due diligence. If consummated, the combined entity would cement its status as runner-up to Melbourne-based AustralianSuper's more than A$170 billion in assets.