CFS ready to play key role in super industry consolidation

Colonial First State Super is ready to support further consolidation in the super industry, its CEO said.

After a major investment in technology, products, and services, the retail super fund believes it is “in a strong position” to play a key role in industry consolidation for the benefit of its members.

In a statement to Super Review, Clive van Horen, CEO of Colonial First State, confirmed the fund’s growth strategy is targeting sub-scale super funds that may struggle to meet rising regulatory and member expectations.

“Our focus is on those funds with members that would benefit from CFS’s scale, strong investment performance and low fees,” said van Horen.  

“Any merger opportunities will need to complement our existing strategy and deliver material benefits for members. This is not just a superannuation opportunity, we are also very well positioned across the wider investment platform market which provides additional opportunities for growth.”

Earlier this week, The Australian Financial Review reported that CFS has identified 60 super funds with less than $20 billion in assets as potential acquisition targets. 

The fund, managing nearly $160 billion in retirement savings, was recently ranked by Chant West as one of the top three growth funds for the financial year 2024, after delivering a 10.7 per cent return.

At the time, CFS CIO Jonathan Armitage credited global sharemarkets as the key driver of investment returns over the past year.

“Any options that invested in the global sharemarket have performed relatively well over the past year,” Armitage said. 

“CFS is also in the unique position of holding no legacy unlisted assets. In an environment of higher interest rates, this has allowed us to deliver another year of solid returns for members.”

The era of mega funds

Recent research by Morningstar points to Australia entering a new phase in its super landscape, with five “mega funds” now dominating the market. 

The country’s two largest super funds, AustralianSuper and Australian Retirement Trust (ART), now command a quarter of the Australian Prudential Regulation Authority (APRA)-regulated market, collectively managing more than $620 billion in assets.

After a wave of mergers, strong performance, and high inflows, the mega fund club has expanded to include Aware Super, UniSuper, and Hostplus. Meanwhile, three additional funds – Cbus, Rest, and HESTA – are on the verge of joining this group.

However, Morningstar warned that most of the “low-hanging fruit” has already been taken, saying future mergers may chart more challenging courses. 

While APRA has encouraged smaller, underperforming funds to merge with larger counterparts, some industry voices said that both small and medium-sized funds still have a valuable role to play in the market.

Speaking to Super Review last year, NGS Super CEO Natalie Previtera said: “Small and medium funds have a role to play in maintaining that intimacy, and the bigger you get, the more challenges you have with staying close to your members and being able to commit to personal service.”

In its research published earlier this year, KPMG said that the optimal scale for a super fund remains uncertain, with both mega funds and smaller counterparts delivering strong investment performance. 

As of 30 June 2023, mega funds posted an average one-year return of 8.82 per cent, slightly higher than the 8.62 per cent average for all fund sizes. Over a 10-year horizon, mega funds achieved 7.94 per cent, compared to 7.78 per cent for all funds. 

Despite these results, KPMG reiterated there is no clear evidence for the ideal scale, with merger activity expected to pick up as sustainability concerns grow.