The emergence of the big 8 super funds
The rapid merger of superannuation funds over the past five years to create mega funds may have made the union/employer make-up of industry fund boards inappropriate, according to new analysis from research and ratings house, Morningstar.
What is more, Morningstar is suggesting that this situation warrants scrutiny.
The inaugural Morningstar assessment of the superannuation sector has also pointed to the evolution of a “big eight” industry funds which have come dominate the sector.
The analysis has questioned whether the balance on the boards of industry funds which have grown rapidly in recent years and across industry sectors remains appropriate.
“Profit-to-member funds, especially industry funds, dominate the superannuation market. Their parent structure can be a big benefit, encouraging a culture of member stewardship without having to balance it with the interests of profit-seeking shareholders,” Morningstar said.
“However, industry funds are by no means perfect. While many were established to cater to members in certain industries, the wave of super sector consolidation has seen larger funds’ member bases evolve to represent a broader cross-section of society,” it said.
But it said the more diverse memberships resulting from mergers may not be reflected in the composition of a fund’s board; “the directors are not appointed by members and may retain close links with industry-aligned trade unions and employer groups”.
“This warrants scrutiny around governance; are board members best-suited to set and oversee a fund’s strategic direction? What proportion of board members are independent? Do industry links skew asset-allocation decisions?” Morningstar asked.
The Morningstar analysis also pointed to the influence of the Australian Prudential Regulation Authority (APRA) and its belief that funds with less than $50 billion in funds under management (FUM) are uncompetitive.
“Compared with other types of investment entities, the regulatory landscape for super funds has an outsize impact on ongoing viability. APRA believes that funds below A$30 billion to A$50 billion are uncompetitive,” it said.
“Smaller funds tend to have higher fees and less scope to benefit from economies of scale – perhaps unsurprisingly, this makes it harder for a smaller fund’s investment options to pass the fee-dependent YFYS performance test.”
In terms of the evolution of the “big eight” Morningstar said that as of early 2024 there are five Australian megafunds, all industry funds: Australian Super, ART, Aware Super, UniSuper, and Hostplus.
“Three more industry funds—Cbus, Rest, and HESTA—are on the cusp of reaching this remarkable milestone. Collectively, these funds constitute a “big eight” within the industry fund segment, materially outpacing their peers in size,” it said.
“Not surprisingly, their market share continues to expand. A decade ago, they held roughly one third of the APRA-regulated market; today, they command over half of all assets. The two largest funds alone—AustralianSuper and ART—control nearly a quarter of the total assets. At the same time, the number of small funds continues to shrink, falling over 70% since 2015.”
Industry Fund boards were never representative of the member base to begin with, because the majority of fund members were not union members and would never regard union officials as their representatives.
The primary reason Industry Funds were established was to give more power to union officials, at a time of rapidly declining union membership. Union involvement in super fund boards was inappropriate 40 years ago and is even more so today.
Rubbish! It is the make up of the board that has made them do successful for their members compared to the banks and AMP.
Just look at the results, it works.
I spoke to two board members at a large industry fund, and no surprise they have their own super in that same fund. Always back self interest because you know it is trying.
By the way, when industry funds were set up the board had to reach a 2/3 majority for all devisions. As a result the board is incentivised to reach consensus. That plus internalising investment decisions to reduce costs and thus fees over time is why they have done so well.
My industry fund has returned 9% per annum after fees and charges over the past 20 years.
So many Australians used to retire with their home and a small amount of savings on the age pension after a lifetime of work.
With a similar working life, it is possible to retire with a home plus a super pension more than double the age pension. For many Australians their industry super fund is a blessing, compared to what their grandparents had.
Is this Michael Cetka in disguise?
I find people who are passionate about Industry Super funds tend to be Union Officials. That says something in it’s own right. The last board Director I met sitting on an Industry Super fund was a union-appointed official, and he had the financial acumen of a 12 year old and was more interested in which fund manager would court him, & take him out for lunch.
Thanks for regurgitating the tired old union super marketing pitch Peter. Now for some facts and reason…
Most of the benefits claimed by union super are actually benefits of the compulsory super model. But those benefits could have been achieved without the grubby hands of union officials (or AMP executives) taking a cut. Our compulsory super system could have been run by a govt controlled agency like the Future Fund. It would have been far simpler and cheaper, and produced better net returns for members.
Comparing union (“Industry”) fund returns to older generation AMP funds, or the welfare system of our grandparents, is an irrelevant comparison. Those were not the only alternative options when compulsory super was introduced. There were better options then and there are better options now. Letting union officials control other people’s retirement savings isn’t necessary for a good superannuation system. It is only necessary as a means for union officials to cling onto power and funding long after they have lost the trust and support of most workers.
Unlisted Assets that only ever go up in value.
Industry Super, compare the pair, the only Super Funds that Assets never loose.
Hostplus 7% returns in a market where Global Managers made 30%. It ain’t working that well.
Superannuation was set up by a deal between unions and labour under Keating. We signed away the right to strike (a basic human right) for a system meant to insure members had a good pension. We have regretted it ever since and wages no longer reflect productivity. Employers break EB agreements and get away with it because the commission is dominated by employers (it was meant to be 50:50).
If recent events are anything to go by, NSW railway workers and nurses never signed away their right to strike. And they (along with most other Australians) will get a good pension thanks to the combination of compulsory superannuation and taxpayer funded Age Pension.
Unions & Bikie Super rule.
And do not ask to look into anything……Union bosses & Bikies will continue to clip the ticket as they choose and payoff & standover ASIC & APRA who allow them to do as they please.
Profits for Union Bosses & Bikies Super is a more appropriate name for these funds that control nearly 2 Trillion $$$$ and want no scrutiny.
Wow haven’t the thugs been smart in Australia & our Regulators totally Corrupted.
You have no idea what you are talking about. Industry funds work and have done much better over the past 30 years than the bank super funds or AMP. Guess what? They will continue to do better than the large for profit funds over the next few decades.
So explain why Industry funds do so much better for their members than retail funds. You have swallowed the Murdoch koolaid. Unions are elected and work for their members. Who elected the bank CEO and they work for their share holders.
Some investment options within some union (“Industry”) funds have done better than some investment options within some retail funds over some time periods. The opposite is also true. Selectively cherry picking those comparisons that favour union funds, then spending huge amounts of members’ retirement savings on advertising and PR campaigns trying to infer it happens with all “Industry” funds all the time, is false and misleading advertising and misuse of members money.
Industry funds were gifted members via awards and EBA.
There was no choice.
Their reporting is not transparent and they are not as low cost as they make out.
Industry Funds are designed to fund the Labour Party and union officials in a time of falling union membership.
I will continue to rescue people from Industry Super Funds. They are corrupt, they do not comply with Australian Advertising Standards and they do not care about their members. Consider AustralianSuper ethical option investing in weapons or their Private Credit defaulting. AwareSuper raising bonds to payoff fee for no service and then writes them off. It goes on. Whether it be a member that commits suicide because their industry Super delays the payout, or the member’s pension application that takes 4 weeks to process.
Their care and service standards are an absolute disgrace.