$240bn Australian Retirement Trust poised for more super fund mergers

Australian Retirement Trust chief executive Bernard Reilly says the nation’s second largest super fund is in talks with other funds about coming under its umbrella.

A year after its formation from the merger of QSuper and Sunsuper, Australia’s second largest superannuation fund, the $240bn Australian Retirement Trust, is set for more mergers.

In an interview to mark the anniversary of the merger on February 28, 2022, chief executive Bernard Reilly said the group was in talks with other funds about coming under its umbrella.

“There’s a combination of corporate (super) funds and other funds which are making decisions to go elsewhere,” he said. “It reflects the continually changing nature of the industry and its ongoing consolidation.”

Mr Reilly, who was chief executive of Sunsuper, said increasing size was a way to reduce average costs per member at a time when super funds were under increasing regulatory scrutiny.

“Members benefit because it is a scale business,” he said. “If you can distribute the costs of running a fund over a broader membership base, it is good for all members.”

The past year has seen ART increase its membership by 200,000 to 2.2 million thanks to a national advertising campaign, promoting its new name to attract new members, and its absorption of several smaller funds.

In February alone, ART announced plans to merge with the $2bn AvSuper, following the collapse of AvSuper’s merger talks with the Commonwealth Superannuation Corporation, and take over the running of the Commonwealth Bank employees’ super fund, which has assets of $12.3bn and 67,000 members.

Over the past year, it has announced moves to take over the management of several other large corporate super funds, including Australia Post’s, and the in-house funds for staff at Incitec Pivot and Woolworths. The $4bn Woolworths staff fund was previously run by AMP.

Mr Reilly said many companies were rethinking running their own super funds given the increasing regulation and costs involved. “We are continuing to see a lot of corporate interest,” he said. “They are attracted by what we can offer with our low cost base and our incredibly competitive long-term returns.”

While much attention has been focused on mergers in the industry super sector, the number of corporate-run super funds in Australia has continued to fall. There are now only 12 corporate funds overseen by the Australian Prudential Regulation Authority, compared with 32 in 2016.

The mergers have helped to expand ART’s footprint from its origins in Queensland to a more national reach.

Now the second-largest super fund in the country after the $260bn AustralianSuper, ART has net cash flows of more than $18bn a year.

Mr Reilly said the superannuation market in Australia was highly competitive and faced the increasing cost of regulation.

Being larger allowed funds to participate in more attractive investment deals, such as ART’s involvement last year in a $8bn deal with Macquarie Asset Management and Aware Super to run the licensing and registration business of VicRoads for the next 40 years and the $24bn privatisation of Sydney Airport.

ART is also in discussions about a $150m investment in a social housing project in Queensland with Brisbane Housing and the Queensland Investment Corporation for the construction of a potential 1200 homes.

Mr Reilly said the details were yet to be finalised.

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‘The industry will consolidate into a number of large funds – it could be somewhere between five and 10.’

Australian Retirement Trust chief executive Bernard Reilly

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Federal Treasurer Jim Chalmers has indicated he would like to see superannuation funds become involved in more national projects including affordable housing and renewable energy.

But Mr Reilly said for ART to do a deal, it had to be “really clear” that it “stacked up financially for our members”.

“Otherwise, the law won’t let us do it,” he said.

Mr Reilly expected mergers would continue in the super industry, eventually leaving some five to 10 major funds, but there were challenges in making mergers work.

“Consolidation will continue, but it is going to take longer than people expect,” he said.

“These super funds are complex organisations and they are not all the same. You can’t have a cookie-cutter approach.

“The industry will consolidate into a number of large funds – it could be somewhere between five and 10,” he added.

“There will be some smaller funds such as corporate funds which may have a competitive advantage to continue to operate for members.

“It will be challenging for them because the cost base only goes one way – but that doesn’t mean they won’t continue. It will be those funds in the middle which will be more challenged.”

As for ongoing changes in the industry, including the proposed legislation to define the purpose of super and talks over whether there should be caps on the amount of money in super, Mr Reilly felt were inevitable, given its size and significance.

“Changes reflect the fact that the system has been incredibly successful, and it has grown to such a degree over the last 30 years,” he said.

“It was probably never contemplated that it was going to get to $3.3 trillion. It’s natural to expect there will be changes along the way.”