APRA has entered the argument over fund scale, releasing research that finds larger funds outperform smaller ones.
The study analysed 280 super funds, covering not-for-profit and retail fund segments.
"Fund size has a positive impact on the performance of not- for-profit superannuation funds, which is evident both in gross returns and in expenses," noted the study's author, Dr James Richard Cummings.
But while no scale relationship was confirmed among retail funds, the APRA study reinforced concerns that in that sector the scale effects are dysfunctional.
"To the contrary, larger retail funds exhibit higher investment expense ratios, although not to a statistically significant level," wrote Dr Cummings.
Explaining the results for not-for-profit funds, Dr Cummings wrote that asset allocation and fees were the main factors.
"Larger not-for-profit funds have higher allocations to investments, such as private equity and real estate, where they are likely to have a size-related advantage. Lower investment expense ratios of larger not-for-profit funds suggest that they negotiate more favorable fee schedules with external managers. Larger funds (whether retail or not-for-profit) realise substantial operational cost savings," he noted.
The lack of a scale relationship being evident for retail funds suggests a combination of factors, such as these funds not passing on scale cost benefits in lower fees because they operate on a margin basis, though it may also reflect limitations in the APRA 'whole of fund' performance data.
Retail super funds reporting to APRA as high level legal entities containing large numbers of platform products may also complicate the retail analysis.
"Larger funds, both in the retail and not-for-profit sectors, had significantly lower operational expense ratios. This finding suggests that larger funds were able to spread fixed costs associated with administration and IT infrastructure over a larger asset base," wrote Dr Cummings.
The policy implications are that "fund members are likely to benefit from further industry consolidation in the not-for-profit sector," he concluded.