How will this trend impact investment operations?
The Australian superannuation industry is going through a period of consolidation. The number of fund mergers has increased in the last couple of years and it is a trend that is accelerating. A significant driver is recent legislative changes that include changes in the way superannuation funds will be required to report underperformance to the Australian Prudential Regulation Authority (APRA) and their members, and in the way employers administer superannuation for new employees. The Government has also introduced a new YourSuper comparison tool that allows members to directly compare fund returns and costs.
APRA is increasing the pressure on superannuation funds to focus on member outcomes. One of the most important questions they are asking is: do you have sufficient scale to be acting in your members best interest? This increased focus from APRA and the number of new regulations, is making it more difficult for smaller funds to survive.
This summary illustrates the decline in the number of APRA-regulated superannuation funds in the past five years:
|June 2015||June 2016||June 2017||June 2018||June 2019||June 2020|
|APRA Regulated Superannuation funds in Australia||255||241||222||211||199||195|
Mergers will create pressures on investment operations teams, both pre- and post-merger, including the need to manage the costs and risks associated with the merger.
A superannuation fund merger is a complex exercise. Funds have a lot to consider when approaching and executing a merger, including:
- How easily can the funds compare portfolios to understand the impact the merger will have on investment strategy?
- Do the funds have the same custodian, and will they consider changing custodian? If so, how will this impact their people, processes and systems?
Funds need to compare their investment structures and frameworks well in advance of the merger taking place. In other words, they need to get to know each other so there are no nasty surprises at any stage of the process.
Once the merger is complete, it is time to ensure it achieves its objective.
The combined fund might adopt the operating model of one of the previous funds or develop a new, more efficient one. But ultimately, it’s time to make sure that they make the best out of the synergies created between the two organisations and if the merger involves a change of custodian then they are able to do this without impacting on the current business processes.
As the fund gets larger, it’s more likely to bring more of the asset management functions in-house, as well as investing in more complex vehicles. That’s where data management comes in — it’s critical to these operations.
Responding to these considerations pre- and post- merger is about having the right tools in place. Specifically, funds need a robust data management solution on board to ensure the process is completed as smoothly as possible.
The AlphaCert solution – greater efficiency, reduced risk, greater data value
From a data management perspective, if a fund has invested in a solution like AlphaCert, it will be more attractive in the pre-merger stage. Instead of having dozens of spreadsheets that could be riddled with inaccuracies, they’ll be able to demonstrate a standardised, controlled system. This mitigates risk to the merger itself, because the business will have better control and understanding of their data
The right data management solution will help a business achieve the key benefits of the merger which is improved outcomes for their members.
As funds increase in size due to mergers, they tend to make more complex investments. Having a robust data management solution in place helps the merged funds to manage those investments, by quickly and easily performing detailed risk and exposure analysis and reporting. For example, by using AlphaCert as the single source of truth to combine custodial data, market data and other sources of internal data, investment managers can gain insight into areas of significant risk and exposure such as:
- Exposure by Currency
- Exposure by Country
- Exposure by Region
- Exposure by Currency Classifications
- Exposure by Counterparty / Issuer
- Exposure by any data classification required for specific use cases
Being able to mitigate these risks means complex investing becomes easier – and this directly benefits a fund’s members.
What it comes down to is that having the AlphaCert solution in place to control and manage investment data gives funds a significant competitive advantage as they enter a merger situation. When mergers take place, they’re subject to increased scrutiny by the regulator, so having a single source of truth that is auditable and transparent is essential for compliance. AlphaCert can help funds complete their due diligence during the merge process and help them realise the benefits post-merger. We’ll leave you with this fact: superannuation funds that do it better, are better at data management.
If a merge is in your future, now is the time to see the AlphaCert solution in action. Book a personalised demo today.