POWERED BY MOMENTUM MEDIA
Scale can cause cost pressures, says Right Lane
Right Lane Consulting has published research showing growing average account balances per member may equate to additional pressures on operating costs.
It is in contrast to the working paper the Australian Prudential Regulation Authority (APRA) released in March on the effect of fund size on superannuation funds' performance, which said larger funds reduced operating costs per member through economies of scale.
The consulting firm said APRA's findings were to be expected, as operational costs were calculated as a percentage of funds under management (FUM) and did not acknowledge the products and services superannuation funds adopt as average account balances grow.
Right Lane found that in 2011, operating costs for funds with between 50,000 and 100,000 members increased from $86 per member when there were $1-2 billion FUM to $346 per member when there were $5 to $10 billion FUM.
Almost across the board, operating costs per member increased as FUM increased. Right Lane said funds were spending more money on members when they had higher average account balances.
It said scale did matter and played a role in terms of member numbers - average operating costs decreased when the number of members increased if the merging funds FUM were similar and they were of the same fund-type.
It said if funds continued to adopt a fixed-fee-per-member pricing structure, they would need to consider membership numbers as well as FUM in any merger considerations.
The research analysed the operating cost performance data of up to 377 funds between 2006 and 2011, grouped by type and FUM, and used a predictive model to produce the results.
Although Right Lane's research assessed the effects of scale on operational costs, it did not consider investment costs.
APRA's working paper said larger not-for-profit super funds could negotiate better deals with external investment managers and shift resources en masse to areas with scale-related benefits to achieve cost savings that smaller funds could not.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Jim Chalmers has defended changes to the Future Fund’s mandate, referring to himself as a “big supporter” of the sovereign wealth fund, amid fierce opposition from the Coalition, which has pledged to reverse any changes if it wins next year’s election.
In a new review of the country’s largest fund, a research house says it’s well placed to deliver attractive returns despite challenges.
Chant West analysis suggests super could be well placed to deliver a double-digit result by the end of the calendar year.
Specific valuation decisions made by the $88 billion fund at the beginning of the pandemic were “not adequate for the deteriorating market conditions”, according to the prudential regulator.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
Spire Oaktree Opportunities XI Second Close
61.07 3 y p.a(%)
2
Spire Oaktree Opportunities XI First Close USD
59.21 3 y p.a(%)
3
DomaCom Lot 21 Chellaston Road Munno Para West SA 5115 Australia
31.56 3 y p.a(%)
4
Fidante Credit Suisse Global Private Equity
31.06 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
26.81 3 y p.a(%)
