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The Pillar sale and market dominance
Mike Taylor writes that despite some strong arguments to the contrary, there are competition concerns about who ultimately acquires Pillar Administration.
When Pillar Administration chief executive, Peter Brook late last year told a Super Review roundtable that Link Administration Services controlled about 90 per cent of the market, it drew a swift disclaimer from Link's public relations representatives.
In circumstances where the NSW Government has placed the Wollongong-based Pillar on the market, it was clear that Link was an interested party and that it did not want Brook's comments to stand as the last word on market share.
The Link public relations representatives promptly turned to the prospectus filed by Link as part of its initial public offering and, in particular, to a graph showing that Link controlled around 30 per cent of the market, with 58 per cent of superannuation funds being self-administered and the remainder of the market being held six per cent by Mercer, four per cent by Pillar and two per cent by other third-party administrators.
The graphic was the result of work undertaken by actuarial research house, Rice Warner, and while undoubtedly accurate in the context of the market parameters examined by Rice Warner it does not represent a reality which would be familiar to many of the trustee/board members of funds regulated by the Australian Prudential Regulation Authority (APRA).
Those trustee/directors would recognise that via its acquisition of its major competitor, the industry funds-owned Superpartners, Link now dominates the industry superannuation funds market.
Superpartners had been owned by major industry funds AustralianSuper, Cbus, HostPlus, HESTA, and MTAA Super - an ownership group which accounted for millions of members and trillions of dollars in funds under management.
In point of fact, Superpartners represented Link's major competitor but it was one which had become weighed down by technology and investment challenges making it ripe for the type of acquisition pursued by Link in 2014.
Despite Superpartners having handled the administration of 6.3 million super accounts and AAS about 4.5 million, the Link acquisition was waved through by the Australian Competition and Consumer Commission (ACCC).
Given its post 2014 acquisition scale, it seems unlikely that the ACCC will prove quite so sanguine about a Link bid, especially in circumstances where the superannuation industry itself is pointing to the dominance of Link/AAS.
This much was emphasised in this month's Super Review Super Fund of the Year awards in which AAS/Link was recognised as Best Administrator with the Heron Partnership describing it as "the dominant administrator".
"Link is the dominant administrator with over 10 million accounts through some of the largest super funds in the country," the Heron Partnership analysis said.
Senior APRA officials have also expressed concern about too much concentration in the superannuation administration space, with APRA deputy chair, Helen Rowell, discussing the issue during a panel session at the recent Financial Services Council (FSC) Leaders Forum in Melbourne.
The concern of the regulator is not just about the level of market share Link/AAS would have but the likely concentration of technology.
The technology implemented by Pillar, via Financial Synergy, is very different to that which has been pursued by Link/AAS and this, in turn, has raised questions about the acquisition of specialist administration technology providers.
What all the companies carrying out due diligence on Pillar Administration know is that the NSW Government has imposed terms and conditions which reflect the regional electoral importance of the administrator to the Illawarra.
It is lost on no one looking at Pillar that whoever acquires the administrator will be required to continue its operations in Wollongong for a specified period of time and that they will need to have a focus on technology investment to ensure the administrator is capable of growing its market share.
By early August it had become obvious that Link/AAS was not the only party interested in an acquisition with private equity players such as Anchorage Capital Partners having emerged and with suggestions that Pillar's biggest customer,
First State Super, might be ready to make the investment.
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