Megafund Hostplus’ chief David Elia predicts it to double assets in five years

Chief executive David Elia says higher contributions, investment returns and mergers could lift Hostplus to $200bn in five years.

Hospitality industry superfund Hostplus has moved into the ranks of the $100bn megafund and has expectations of doubling its assets to $200bn in five years, chief executive David Elia says.

Hostplus is now one of the top five industry funds in a market dominated by the $280bn AustralianSuper and the $240bn Australian Retirement Trust.

These are followed by Aware Super which currently has assets of about $150bn and UniSuper which has assets of $115bn.

Among the retail funds which once dominated the Australian superannuation landscape, Insignia, AMP, CFS and BT have assets of more than $100bn.

Industry super funds have had the fastest rates of growth and five now have assets of more than $100bn.

In an interview with The Australian, Mr Elia said a combination of higher contributions, investment returns and more potential mergers could result in the fund, which has just passed the $100bn market, doubling in size over the next few years.

“The fund doubles in size every five years based on compounding increases in the compulsory Superannuation Guarantee levy and consolidation,” he said.

Mr Elia said Hostplus, which has its origins in the hospitality industry but is now a public-offer fund, was receiving $11bn a year in employer super contributions – a figure which was expected to increase with the rise in the SG levy to 12 per cent of wages by 2025.

He also hinted that the fund could be looking for more mergers as consolidation in the industry continued.

Over the past few years it has merged with Club Super and Intrust, which has boosted its membership in Queensland.

It finalised a merger with Statewide Super last year, pushing it into the ranks of the top five super funds in the country by membership and top 10 in terms of funds under management.

It expects to finalise its merger with the $6bn Maritime Super later this year.

The fund now has 1.7 million members, comprising 13 per cent of the Australian workforce.

“I can’t give too much away, but it’s fair enough to say that more mergers (in the superannuation sector) are to be expected,” Mr Elia said, when asked whether Hostplus would undertake more deals.

“The industry will continue to consolidate and scale will become critically important.”

The KPMG Super Insights 2023 report says the superannuation industry in Australia is experiencing the rise of $100bn megafunds as the industry consolidates into fewer numbers of bigger funds.

The report ranks Hostplus with the fifth fastest growth rate over the past year by member and the third fastest growth rate by funds under management.

Hostplus could have $200bn in assets under management within five years.

Mr Elia said the increasing pressure on funds to deliver strong investment performances with low fees, while dealing with increased regulatory and compliance measures, was adding to the importance of scale in the sector.

“With the utmost respect to some of the small funds and the boutique-style funds, the reality is that scale does bring about additional advantages, including being able to source different investments which smaller funds are not able to participate in,” he said.

“Consolidation will also be driven by the intense competition in the industry. And the regulatory environment is not getting any easier.

“The intensity of the regulatory regime will make it a lot harder for the small to medium-sized funds to be able to compete successfully against the larger funds.”

Hostplus had its origins in the hospitality industry but Mr Elia said “some of our largest contributing employers are not in hospitality businesses”.

He said Hostplus had an “influx of new members” who were joining of their own volition and not in connection with any workplace agreements.

“Our public-offer division stands at more than half a million members. These are people whose membership is not underpinned by any enterprise bargaining agreement or awards,” he said.

“They are working Australians who have made an active choice to join Hostplus.”

He said Hostplus planned to step up promotion of its investment options for self-managed superannuation funds.

“We are probably the only industry super fund which caters for self-managed super funds,” he said. “We offer SMSFs the opportunity to invest in our underlying investment platform.

“We have almost 1000 self-managed super funds who have taken advantage of that and invested around $400m with us.”

Hostplus was “in the early stages” of promoting its investment offerings for SMSFs.

Mr Elia said the fund had no current plans to change its position of using external fund managers and not managing its money in-house.

Many larger funds are now moving to bring an increasing proportion of the management of their assets in-house.

Construction industry super fund Cbus recently announced plans to increase the proportion of funds managed in-house from 38 per cent to 50 per cent over the next five years.

But Hostplus has defied the trend and continues to use external fund managers, despite its growing size.

“We have an open mind on that question (the internalisation of investment management),” Mr Elia said. “We review it on an ongoing basis. There is scope for both approaches.

“There will be those organisations who believe they can get better outcomes by managing their money internally, but we have clearly demonstrated that the outsourced model we employ gives us access to the very best skilled investment managers all over the world.

“(With our external fund managers) we have over 2000 professional staff working all over the world for Hostplus members.

“An internalised model could never replicate that.”

He said Hostplus had driven down the fees charged by its external fund managers. But he said it was the net returns on investments which were the most important thing for fund members.

“We do drive investment fees low, but our members can’t eat low fees alone,” he said.

“They can eat net investment outcomes which has been a key driver of the underlying philosophy of the fund for many years.”

He rejected suggestions that Hostplus’ recent strong growth had come from the introduction of stapling, where members are assumed to be tied to their original super fund, unless they elect to change it.

Some industry observers have argued that the introduction of stapling, as part of the Your Future, Your Super changes which came into force in 2021, advantaged Hostplus as many people start out their working life in hospitality jobs.

Mr Elia said other super funds, which also had workers with common first time jobs, were not growing as fast as Hostplus.

“We are growing at a faster rate than the hospitality sector,” he said.

“We are also growing at a faster rate than the superannuation sector itself, which basically says we are gaining market share.”