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Object lessons in CitiStreet failure
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Australia's three largest superannuation administrators have pointed to the now-defunct joint venture between State Street and Citigroup — CitiStreet — as an example of what can go wrong when margins are too narrow.
In a joint submission to the Cooper Review into superannuation, the three administrators used the demise of CitiStreet to underline their arguments with respect to pricing and claimed that, with respect to long-term viability, there were lessons to be learnt specifically from the CitiStreet case study.
The submission described CitiStreet Pty Ltd as a joint venture between State Street and Citigroup operating in the Australian market from 2002 to 2008 aiming to "bring a powerful force in solutions for superannuation and member services".
It said CitiStreet entered the market with SunSuper as a cornerstone client and expanded to a number of other clients including Non-Government Schools and EquipSuper, but added that while the administrator had the financial backing of two multinationals, systems, experience and a solid client base, it could not make a profit.
The submission said according to the last financial accounts lodged with the Australian Securities and Investments Commission for the calendar year ending 2007, CitiStreet had posted a net operating loss of $10.5 million.
"In 2008, partially due to the shake up in investment banking resulting from the global financial crisis, the international backers made the decision to exit the Australian market, leaving CitiStreet clients to find alternative arrangements.
"CitiStreet was in effect absorbed by its major client SunSuper, with other clients moving to alternative administrators. Ultimately, no superannuation fund member administered by CitiStreet lost their savings in this experience, however, the risks and costs associated with the prompt exit will ultimately be borne by members and impact their long-term retirement benefit," the submission said.
"The lesson here is that margins have been too low to provide a framework for sustainable long-term investment," it said.
AUTHOR
Mike Taylor
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