Further consolidation a key challenge for industry

Ian Martin

Fund consolidation will be one of the key challenges over the next quarter century for the superannuation industry, which is expected to grow to more than $6 trillion by 2035, according to State Street.

In its new report entitled Vision Focus, State Street also suggested there would be dramatic changes to the way funds are run and to the way they invest.

Ian Martin, head of State Street’s Global Markets and Global Services businesses in Australia and New Zealand, said that because of the amount of time involved in the due diligence process and identifying the appropriate service model, consolidation will actually continue at a measured pace.

But it will continue, as funds look to create economies of scale and attempt to compete in the changing market. That scale will bring greater sophistication, with funds greatly diversifying in terms of their asset classes towards alternatives such as private equity, infrastructure and hedge funds, Martin said.

There will also be greater diversification into offshore markets, particularly as the size of the sector continues to grow and it becomes harder to distribute that amount of funds domestically.

MySuper will present a key concern, with funds being required to provide a low cost option, and that will further increase the popularity of exchange traded funds (ETFs) that are already proving popular in the rapidly growing self-managed super fund sector. ETFs will likely gain more traction in the wholesale part of the sector and will be part of a broader move towards passive products, Martin said.

Funds will also look to change their internal administration as growth and consolidation continue, he said. Many funds will look to outsource their middle office administration while moving more of their investment management activities in-house, he said.