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Does size really matter
With AustralianSuper now reigning supreme as the nation’s largest superannuation fund in terms of both membership and funds under management, it is hardly surprising that this year’s Conference of Major Superannuation Funds will be looking at the question of economies of scale.
In fact, CMSF has this year commissioned a research project to examine the whole question of size in superannuation and whether large funds do, indeed, generate economies of scale.
The research was undertaken by Sydney-based research house, Rainmaker Information, which has specifically looked at the impact of scale upon fund efficiency fees and deliverables.
However, the anecdotal evidence from those at the coal-face is that while scale may deliver benefits in terms of extracting better deals from some providers such as insurance product manufacturers, it cannot help generate better outcomes in terms of investment returns.
The latest data from a range of research houses has revealed that it is the mid-sized funds rather than the giants which have tended to perform best in terms of investment returns.
Looking at fund performance, Sydney-based ratings house SuperRatings certainly identified two large funds — Westscheme and MTAA Super — as having generated the best returns in the 12 months to 31 January, with returns of 16.90 per cent and 16.30 per cent respectively, but had AustralianSuper running ninth in its top-ten table with a return of 14.30 per cent.
Similarly, Intech rated the best industry fund performers during the 12 months to December, 2006, as being ESI Super, REST and TISS.
For his part, the chief executive of Australian Super, Ian Silk, earlier this year told Super Review that the most significant scale advantages for the fund related to its ability to command substantial cost reductions and greater flexibility from service providers.
Silk referred to cost-savings which had been extracted with respect to insurance, administration and member communications.
While there have been plenty of advocates of scale in the superannuation sector, people such as Queensland’s Bob Hendricks continue to insist that there is much to recommend small, highly specific funds.
Hendrick’s arguments gain real meaning when the latest Intech data is examined, with one of the smaller funds with which he is involved ESI, rewarding members far better than some of the larger and supposedly better-resourced funds.
The Intech data revealed that ESI’s growth option had generated a calendar year return of 15.09 per cent, and a three year return of 16.05 per cent.
According to the Intech data, this placed ESI at 14th in terms of performance over the calendar year and sixth in terms of three year performance.
To place this into context, ESI has funds under management of around $163 million, compared to the multi-billion dollars being managed by funds such as AustralianSuper and REST.
AUTHOR
Mike Taylor
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