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Super trustees face rough seas ahead: Byres

In a speech at the Trans-Tasman Business Circle 'Meet the regulators' event, APRA chair Wayne Byres said to expect the performance of super trustees to continue to be the subject of intense scrutiny.

On APRA's latest priorities, Byres said that even though super funds' operating environments are rapidly shifting, the regulator's focus will continue to be on rectifying sub-standard practices and eradicating poor product performance.

In the name of driving improved member outcomes, Byre's said APRA is unapologetic about making use of its new powers.

Byres said: "Parliament didn't give them to us only to have them gather dust."

"These powers are important for making sure the higher standards of trustee behaviour - embodied in a relentless focus on members' interests over all else - are not just aspirational."

Surveying the current crop of super funds, Byres added: "In an industry where size matters, there's a long and often underperforming tail."

Of the 145 APRA-regulated funds, 105 have less than $10 billion in funds under management, and 70 have less than $2 billion, he said. Collectively, those 105 small funds - 72% by number - manage only 8.5% of assets.

"In contrast, 17 large funds have more than $50 billion in funds under management each, collectively accounting for more than 70% of assets," Byres said.

Byres said this vast size difference matters and has real impacts on the outcomes delivered to members. He referenced recent analysis of super fund sustainability that found smaller super funds were more likely to struggle to deliver quality, value-for-money member outcomes into the future.

Oppositely, analysis findings indicated that large super funds could more easily spread their costs over a wider membership base to keep fees lower. The analysis also showed that administration and operating expenses for large funds were significantly less than that of small funds.

"About half of sub-$10 billion funds face sustainability challenges with declining net cash flows and accounts. It's hard to see how that's going to generate the best outcomes for their members," Byres said.

Nevertheless, Byres made a point that APRA didn't blindly adopt a 'big is good, small is bad' approach. However, overall, it was difficult to get away from the fact that size, translating into economies of scale, helped deliver better member outcomes, he said.

Byres posited that trustees that can't compete on that basis need to think very hard about how or if they even can deliver in their members' best financial interests, now and into the future. He said that there is no longer anywhere for poorly performing funds to hide and not to expect APRA to throw strugglers a life buoy.

Also speaking at the event, APRA executive director of superannuation Suzanne Smith said another key area for APRA concerns investment governance.

Smith said as global economic conditions become more uncertain, appropriate, and effective governance is essential to generate sustainable returns for members. She added that it is essential that the trend of insourcing investment management activities within super funds continues.

"An environment that was already challenging for superannuation trustees through increased scrutiny and tougher regulatory requirements is becoming even more demanding as the global economy potentially encounters some rough seas," Smith said.

She said APRA is working to ensure trustees had a clear strategy to protect and promote member industries, likewise, the regulator expected trustees to constantly scan the horizon for potential threats and opportunities.

Smith concluded that APRA won't allow trustees to remain afloat at any cost if that cost is borne by members.

Read more: APRASuperannuationTrans-Tasman Business CircleWayne ByresSuzanne Smith