Debate heats up over survival of corporate funds
The future of corporate funds, apart from the very largest ones, has emerged as a major source of speculation within the super industry under choice.
Speculation ranges from predictions of the outright disappearance of the small to medium-sized funds to assertions of a thriving future, along with growth rates at least in line with industry and commercial funds.
Executive chair of Industry Fund Services, Garry Weaven obviously subscribes to the former school of opinion, suggesting bluntly that corporate funds are “obviously going to go out of business”.
Weaven says he believes choice has resulted in “some addition to the growth levels of the larger funds, notably for the large public offer industry funds and some of the large commercial funds. I am talking here about employers enrolled, active members enrolled and FUM [funds under management]. That might mean that some of the smaller commercial retail funds/master trusts are losing market share, and obviously, corporates, well they’re going to go out of business.”
Chant West Financial Services principal Warren Chant is also less than optimistic over the future of corporate funds, notably after July 1 this year, when the “new APRA [Australian Prudential Regulation Authority] licensing requirements come into force”.
Chants predicts that after July 1 there will be about 300 or 400 super funds in total, of which about 50 will be corporate funds, and only the very large funds.
Corporates will also suffer an increased membership attrition to the industry funds.
“Corporates are a good deal while you’re with a company, but as time goes by people will want to go into a fund that offers a good deal throughout their life, and that’s where industry funds really have an advantage,” he says.
However, Ross Bowden, ING’s executive director of employer super, says corporate super funds are growing under choice and are projected to grow at the rate of 10 to 12 per cent per annum, more or less in line with the super industry average.
“In fact, corporates are projected to grow a little bit more than retail funds. Industry funds have been growing quite well under choice, against expectations, and are a key competitor for us in the market.”
One reason for Bowden’s optimism is that there’s still “a rump of company funds that have not yet outsourced to master funds, although corporate funds are mainly done through a master trust these days, which, he says, have a fairly similar projected growth rate of 10 to 12 per cent per annum.
While he acknowledges corporate funds “could have expected some attrition in terms of people electing choice and leaving the funds, this has been relatively minimal. We haven’t seen any significant outflows at all.”
He believes corporate funds will “continue to grow where companies find corporate funds to be relevant, which is particularly in the 20, 30, and 40-member plus base. The scale benefits of corporate funds get higher and higher the more employees you have”.
He said corporate funds offer employees “pretty significant scale benefits in price and insurance”, making them attractive to companies wishing to offer good employee services, and thereby giving them their primary advantage over competitors.
— Liam Egan
Recommended for you
In the latest episode of Relative Return Insider, hosts Maja Garaca Djurdjevic, Shane Oliver, and Keith Ford unpack the twists and turns of today’s markets – from credit rating agencies navigating global uncertainty to simultaneous dual IPOs.
In the latest episode of Relative Return Insider, host Maja Garaca Djurdjevic and AMP’s Shane Oliver break down US and Australian rate cuts, soaring gold, and bitcoin’s volatility.
In the latest episode of the Relative Return Insider, host Maja Garaca Djurdjevic and AMP’s chief economist Shane Oliver unpack the surprising twists in the Australian economy, diving into the latest GDP numbers, what’s really driving consumer spending, and what it all means for the Reserve Bank’s next moves.
In this episode of Relative Return, host Laura Dew chats with Roy Keenan, co-head of fixed income at Yarra Capital Management, to discuss the evolving fixed income asset class, his sector preferences, and the RBA’s rate-cutting policy.
