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Rise of the mega funds continues

Increased merger activity in the superannuation sector will see most of Australia's retirement savings managed by just 12 funds, new research shows.

KPMG's annual Super Insights report analysed APRA and ATO data and found that once the mergers that have been previously announced are finalised, 77% of member accounts will be managed by 12 funds all with assets under management of over $50 billion.

KPMG defined mega funds as those with more than $100 billion in AUM and sub-mega funds as those with over $50 billion.

Sunsuper and QSuper will merge later this year with the two funds becoming a $200 billion entity, while AustralianSuper already has $210 billion under management.

Aware Super has already reached mega fund status with $116 billion in AUM and recently signed a Memorandum of Understanding with the Victorian Independent Schools Superannuation Fund (VISSF), which would add a further $855 million.

Cbus and Media Super also announced they are working on a merger plan to become a $60 billion fund while Maritime Super and Hostplus announced an asset pooling partnership that will create a $61 billion trust.

"The stand-out issue in the industry is consolidation. We see an increase in ongoing merger activity - which kept up during COVID but will now accelerate, mostly in the industry funds sector," KPMG national sector leader, asset & wealth management Linda Elkins said.

"Over the next few years, we will see an increase in scale of the 'mega' funds and a widening gap between the 'sub-mega' funds and those lower down."

As at 30 June 2020, industry funds accounted for 29.6% of the industry. KPMG predicts that by 30 June 2021 they will have overtaken SMSFs and, by 2025, represent 36% of the market.

In 2019/20, the number of APRA-regulated funds dropped from 171 to 154.

In addition, KPMG believes the ongoing impact of APRA's heatmap will continue to drive mergers while the Your Future, Your Super measures will drive flows to mega funds because of their brand awareness.

However, KPMG noted the key issues for mergers this year is maturing regulatory and government settings, business model sustainability, separation and integration, globalisation and rising member expectations.

Read more: KPMGAPRASuper InsightsAustralianSuperAware SuperCbusHostplusLinda ElkinsMaritime SuperMedia SuperQSuperSunsuper