Industry funds are starting to claim a greater share of the corporate superannuation market as the trend towards outsourcing continues.
Several industry funds report that employers have become more willing to give them a closer look in the current poor investment environment and as the focus on cost cutting grows. Employers, they say, are attracted to the stronger returns industry funds have been delivering in comparison to their high cost retail rivals.
Indeed, some larger industry funds are emerging as a considerable threat to the small to medium-sized master trusts in circumstances where the latest data on super inflows from research house Dexx&r confirm that the market is being dominated by the majors such as BT, AMP and Mercer.
The Heron Partnership’s executive director John Smith and Rice Walker Actuaries managing director Wayne Walker both note that the major industry funds look far more attractive when compared to many of the small to mid-size master trusts.
Smith says this is because they boast the economies of scale which enable them to offer a highly competitive package when it comes to pricing and service delivery.
“It’s not until you compare the industry funds and the master trusts side by side that you appreciate what the differences, the benefits and deficits, really are,” says Walker. “A number of the industry funds have worked really hard in terms of being attractive with respect to successor fund arrangements.”
Tender consultant Warren Chant, of Chant West Financial Services, agrees that industry funds are doing well in the small to medium market, but he adds that this is largely where only accumulation members are involved.
Many larger funds have defined benefit components and look for experience in handling this. While several industry funds say they can handle defined benefits, collectively, they only have a small amount of defined benefit under administration, says Chant.
He adds that the smaller employers are, the more likely it is that they will look at industry funds. However, he believes that larger employers have more direct contact with the unions and are less inclined to give the unions more leverage by considering an industry fund.
Nonetheless, Chant expects industry funds to continue to make inroads into the corporate outsourcing market because “they are trying harder, are more cost competitive, have shown a strong performance… and have also upgraded their education and web sites”.
He adds: “They still have a way to go but they are getting better.”
Smith says a number of industry funds — particularly those perceived not to have strong union or political affiliations — are already being viewed favourably in the outsourcing scenario. Many also have an advantage in circumstances where they have employer trustees with strong external networks.
“It has actually been quite surprising to see how quickly they have moved and how rapidly they have understood the corporate market,” says Smith.
Walker adds: “I really think industry funds have the capacity to win in the outsourcing scenario if they’re prepared to work hard at it….We’ve been involved in a number of cases where industry funds have won over master trusts.”
The Australian Retirement Fund is one of many examples of industry funds that have been snapping up outsourcing funds from under master trusts’ noses for years. Its recent wins include the management funds of World Vision and Feltex Carpets, which have assets of over $30 million between them.
ARF CEO Ian Silk belives his fund’s attractions include its investment performance, range of investment options, the quality of its education and communication resources, its web site, its employer-friendly administration processes and low fees.
According to Walker, the degree to which industry funds pick up corporates will depend on how they present themselves.
“If [industry funds] get the technology right in terms of being able to deal with balances of $50,000 instead of, say, $1500, then they will attract the corporates,” he says.
Chant believes that to make greater inroads, industry funds need to spend a lot more on marketing and on improving their documents and their web sites.
“They have tremendous potential. They could increase fees easily and still be much cheaper than the master trusts. Until they do that, it will be difficult for them to be successful,” he says.
