Has the ACCC broken Link’s Pillar bid?

The Australian Competition and Consumer Commission (ACCC) has made clear that it believes Link Market Services – the owner of Australian Administration Services (AAS) and Superpartners – has what amounts to market dominance in the superannuation administration market. 

It has not utterly ruled out the possibility of Link being allowed to acquire Pillar Administration, but it has made abundantly clear that Link would have to mount some extraordinary arguments to get the ACCC to change its mind. 

The Statement of Issues (SOI) published by the ACCC on 13 October made clear that the competition regulator is far from convinced by those supporting the notion that Link’s market dominance is actually diluted by the capacity of superannuation funds to insource. 

Link and its supporters now have until the end of October to make submissions countering the ACCC’s SOI position and the company in mid-October signalled its intention to do so. 

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The timetable around the ACCC’s processes is such that it will be the 15 December before the ACCC declares its final position on the issue. 

But the arguments posited by the chairman of the ACCC, Rod Sims, on 13 October would seem to suggest that the regulator will not be easily persuaded that Link is not the dominant player in an industry in which the barriers to entry are significant. 

From the moment Link acquired the struggling and capital investment hungry Superpartners from its industry fund owners, it became obvious that it had assumed a position of dominance in circumstances where its only significant competitor was Pillar. 

What is more, and despite some misgivings expressed by superannuation fund chief executives, few funds actually changed their arrangements when Superpartners came under the control of Link – one of the reasons for this was the distinct lack of options. 

Sims said the competition regulator was concerned that the possible acquisition was likely to substantially lessen competition in the supply of superannuation administration services by entrenching Link’s dominant position. 

“The ACCC is concerned that the possible acquisition will remove the only alternative superannuation administration services provider with the demonstrated capacity to supply administration services to larger funds in competition with Link. Consequently, there would be one dominant administration provider facing limited competitive constraint in the outsourced market,” Sims said. 

“It would also remove the potential for an alternative owner to further invest in Pillar’s offering and make it an even stronger competitor to Link in the future.” 

The ACCC is seeking to better understand the barriers to entry or expansion and the likelihood of new entry or expansion in the sector. Other issues include the extent to which insourcing superannuation administration services is a credible constraint on Link and the likelihood of self-administered funds providing administration services to other funds. 

“The ACCC’s preliminary view is that a fund that currently outsources superannuation administration services is unlikely to switch to insourcing as a way of bypassing Link; it would be too costly and difficult,” Sims said. 

“The ACCC also considers that funds are unlikely to provide superannuation administration services to each other in a way that competitively constrains Link. It is beyond the remit of most funds to sell administration services, and, furthermore, many funds are likely to be reluctant to purchase administration services from their competitors.” 

What Sims did not say, but might have seen fit to mention, was the level of systems risk which is likely to flow from Link Market Services gaining control of Pillar Administration in circumstances where it would place all administered superannuation funds on a single IT platform. 

Pillar not only represents a competitor for Link but also offers an IT platform alternative, with the NSW Government-owned business having recently invested heavily in a move to Financial Synergy’s Acurity platform. 

While Sims did not mention the platform risk issue, the ACCC’s background summation of the issues did point to Link’s proprietry ownership of its aaspire platform and Pillars use of multiple IT platforms. 

Without seeing the submissions filed with the ACCC when it began its examination of Link’s bid for Pillar it is hard to know all the factors which influenced the competition regulator when it compiled its Statement of Intent but a Super Review roundtable conducted at the Conference of Major Superannuation Funds (CMSF) in March revealed significant concerns about a lack of competition in the administration space. 

Two of the fund chief executives participating in the roundtable expressed concerns around market dominance, with one specifically referencing systems risk. 

There can be no doubting that the ACCC’s view of Link’s position has probably complicated the sales process being followed by the NSW Government in circumstances where, competition issues aside, Link gave the appearance of being a very eager bidder. 

Given the ACCC’s timetable, it now seems unlikely that the NSW Government will be able to announce a buyer for Pillar much before early April, 2017. 

In giving the background to its deliberations, the ACCC neatly encapsulated the issues: 

The NSW Government has announced that it intends to privatise Pillar, and has commenced a competitive sale process. Link is one party who has expressed an interest in acquiring Pillar. 

Link is the largest provider of services in Australia’s fund administration industry, providing services to over 10 million superannuation member accounts through its businesses Link Super and Australian Administration Services. Link has its own proprietary IT platform (the aaspire platform), which it uses for the provision of administration services for most of its clients. 

Pillar is a NSW state-owned corporation that provides administration services mainly to Government superannuation funds, pension funds, and defined benefit schemes. 

Pillar administers more than 1.1 million superannuation member accounts, with assets totalling more than $100 billion. Pillar does not have its own proprietary IT administration platform and uses a number of IT platforms licensed from third parties.