$1 trillion FUM predicted for big super funds

Australia’s largest superannuation funds are realistically likely to reach $1 trillion in assets under management within 10 years, according to research and ratings house, Morningstar.

The assessment has been made by Morningstar Director of Manager Research Ratings, Matt Olsen, allied to the ratings house publishing the first tranche of its Medallist Rating for superannuation funds covering AustralianSuper, Australian Retirement Trust (ART), Aware Super, Colonial First State (CFS) and UniSuper.

Olsen said the funds covered in the tranche are amongst the best in the market, backed by scale, strong governance and long-term performance.

“With the growth of larger funds, $1 trillion in assets is a realistic milestone within the next decade,” he said.

Amid the increasing internalisation of investment management, Morningstar has examined the major superannuation under much the same medallist methodology it applies to managed funds.

Dealing with the medallist ratings in the first tranche, Morningstar attributed the following outcomes:

Morningstar said that within the three pillar process underpinning its medallist approach of People, Process and Parent for each of the superannuation funds, the Parent pillar was the most important, carrying a weighting of 25% for multi-sector strategies, “emphasising the critical role of governance in delivering exceptional retirement outcomes”.

The Morningstar assessment rated ART, Aware Super and UniSuper as being the stand-outs with respect to the Parent pillar, while AustralianSuper, ART and UniSuper rated well with respect to the People pillar.

We observe that super funds adopt varying approaches to investment internalisation: AustralianSuper and UniSuper – Primarily rely on internal investment management, having been early adopters of this approach; ART and CFS – Largely maintain an externalised investment approach; Aware Super – Has increased internalisation in recent years, operating under a more hybrid model.

In terms of the Process pillar, Morningstar noted that funds such as AustralianSuper, ART, Aware Super and UniSuper with significant scale and strong net inflows could make sizeable allocations to relatively illiquid unlisted assets,