The fund is building a platform, which it hopes to have ready by the end of the year, that will give other fund and SMSFs access to each investment on a unit price basis.

The trust is designed to appeal to funds that wish to retain their independence, but are struggling to achieve economies of scale in investment or to achieve best practice in governance.

Paul Watson, executive manager of member and consumer choice at HOSTPLUS, said: “A small industry fund might have a great affinity and loyalty with its members, but it does not have the scale to deliver the sorts of investments we have.”

He described this process as a “soft merger”.

Soft merger explained

Any fund that accessed HOSTPLUS’ pooled trust would still need to formulate its own MySuper strategy and tailor it from the range of investments on offer under Australian Prudential Regulation Authority rules. Equally, a smaller fund might choose to only access specific investments where it cannot gain scale such as private equity or infrastructure.

Watson added: “As to whether a total or partial outsourcing of the investments will prove more popular, it’s hard to know, but I expect the greatest scale benefits will be realised by larger funds seeking to fully outsource the investment function.”

The pooled superannuation trust will also be offered to self-managed super funds at fees lower than those found in retail investments, claims Watson.

“We have investments in iconic property both here and internationally, such as airports and utilities. These are investments that your typical SMSF would not have access to,” he said.

The move comes as part of concern at the turnover of members and assets at HOSTPLUS. Only around three out of 10 members who join the fund are expected to stay until retirement and in a bid to stem this outflow, it is also launching a direct investment option platform. Some of this outflow comes from members joining SMSFs.

The platform, which Watson describes as an “SMSF-lite” product, will launch at the end of May and offer access to the top 300 ASX stocks, a select range of 35 to 40 exchange traded funds, term deposits and cash holdings.

The platform is being launched to appeal to members who want the control an SMSF brings, but who do not need to use it for more advanced financial planning such as placing a business premises or collectable art within the tax wrapper of a retirement saving plan.

Watson said hundreds of members had already expressed interest in accessing the platform.

Specifically, Furlan says she’s seeing more complaints from baby boomers who have been in super a long time and, having retired from senior roles, feel financially vulnerable in retirement.

Furlan said when there’s an error or unexpected event, such as an incorrect benefit statement to a delay in a payment, members in the midst of massive life change have difficulty dealing with the situation, and the incident escalates.

“…We often get transcripts of the calls between them and the super fund’s call centre, and they can be quite fraught, because this is a very senior person who has worked for 45 years under the impression they’re talking to someone in a call centre who’s younger than them and not on their wavelength,” she said.

“And they don’t want to give the impression of any financial vulnerability, so they’re over-the-top strong. And then when it goes wrong, they start to doubt the whole of their 45-year relationship with the super fund. So they question everything.”

While Furlan says the numbers of complainants aren’t substantial, she says “the resource drain is enormous”.

“And their complaints morph, so they start as one thing and then they get bigger and bigger, and… because they’re not working full-time anymore, they’ve suddenly got time to really delve into it.

“I guess I’m anticipating that there could be even more because of the number of baby boomers that are going to retire in the near future,” she said.

Furlan suggests funds should be more mindful of the psychology of baby boomers, many of whom intimately know their super, proposing greater awareness and a “language” consciousness in how they communicate with members.

“Everything falls apart and I think, possibly, a way to kind of defray that is for call centres to have a bit of a subconscious antenna, that these people might need treatment that they’re used to getting because of their seniority in their other lives.

“But I never want to tell funds how to run their business.”

“It’s a way to help trustees think through ESG issues, and to evaluate whether they should make decisions that will then have an impact on the portfolio,” he said.

Introducing the framework at the Australian Council of Superannuation Investors conference on ESG investment earlier this month, Glass has termed it “point of decision, point of impact”, or PODPOI, designed to assist in investment decisions and the impact they are likely to have on a portfolio.

Glass said a PODPOI decision could be, for example, to take a view on climate change in general or, more specifically, a view on the future of fossil fuels.

“Then you would make a decision to implement that somewhere in your portfolio through your equity or the bond holdings, and that to me is a decision, and that will have an impact.”

Glass said funds should have a much greater level of awareness of the potential volatility in asset valuation and the risk of mispricing on the buy and sell sides.

He warned funds should be prepared for a negative outcome if they haven’t considered externalities in assessing long-term investment risk.

“People are slowly becoming aware that when you make investment decisions, you have to think through how you’ll react to the consequences of those decisions.

Actions, not words

“There’s a benign theory that says, every decision you make will be good for the fund. We know that can’t possibly be right. It’s almost as if you have to gear yourself up for a bad outcome. I call that a pre-mortem.”

Media Super, a $3.2-billion fund, signed up to the United Nations-backed Principles of Responsible Investment two years ago, and Glass said the fund’s engagement with ESG investment is a work in progress.

“You want to move slowly and deliberately, not quickly. You want to make sure that your PODPOI is based on an economic thesis that will play itself out in terms of delivering returns to your members.

“Does that mean you are prevented from making certain decisions? Not at all. But I’m saying the economic thesis is paramount, because we’re here to deliver returns to members.”

“Being a signatory to UNPRI and having a written ESG policy in an investor policy statement are useful, but not enough,” added Glass.

“I’m sure there are individual funds that are doing wonderful things… but as an industry, we have yet to rise to the challenge.

“I believe that the members of super funds would be comfortable for us to make these PODPOI decisions as long as we explain what we’re doing and why, monitor the impact and report back to them.”

However, Glass said a major challenge for chief investment officers is coping with the “information tsunami”.

“Any fund is going to have a lot of investment managers working for them, and they churn out thoughts and research… How do you assimilate it, absorb it, make use out of it?”

Trustees were asked to rank their top three issues from the following list:

• Stronger Super – implementation and costs
• MySuper licences
• SuperStream implementation
• Low-income earners and equity in taxation
• Equal representation on boards
• Post-retirement income adequacy
• Directors’ personal liability
• Data reporting to the Australian Prudential Regulation Authority (APRA)
• Automatic consolidation of accounts
• Competition between funds

The merger, with the National Catholic Superannuation Fund (NCSF) two years ago, was a major turning point for Catholic Super. Its funds under management had stood at $3.7 billion, and its membership base was limited in its demographic reach. NCSF brought in $600 million to $700 million of funds under management and a membership base that matched Catholic Super’s of 35,000, thereby extending Catholic Super’s national coverage to achieve “quite significant memberships in each state”.

“That brought members from the health and aged care sectors to our fund,” says Bugden. “We’d been education by and large up until then.”

With approximately 70,000 members, just over 3000 are pensioners and 5000 are employers. Bugden says the employer figure varies upwards each month – there are another 4000 non-participating employers (meaning they haven’t contributed for a period of 60 days).

Its largest membership is still in Victoria and Bugden says the fund remains primarily within the Catholic education sphere. Between 70 and 75 per cent of its members are women.

The board is still focused on growth, including potential opportunities on the back of Stronger Super. More specifically, Bugden says Catholic Super is “seeking interest” from smaller funds that aren’t applying for the MySuper licence to decipher whether there’s scope for their restructure.

Bugden says it’s “sort of a merger”, but might fall under a master trust arrangement structure. “We’re talking to a number of funds in relation to that. It’s early days, so it may not happen, but that’s one idea we’ve got.”

Also front of mind for the board is what the super industry will look like in several years’ time – more specifically, in terms of their service offerings. There will be fewer funds, says Bugden, offering more services.

“We’ll have to. And we’re looking at, as some other funds are, what the services are that you might offer to your members in terms of financial, like banking services and credit facilities, and all those sorts of things. I can’t give you any announcements yet, but we’ve certainly done a fair bit of work on it.”

Board selection

Catholic Super has a fairly open and transparent process in board selection, according to Bugden, who says it’s a point of difference to other funds. “…We are not like any other super fund in that there is not a major employer who sponsors the fund,” Bugden says.

The board of 10 trustees is selected by election, not appointment, with five elected by employers and five by members. “The fund’s directors are nominated by any of the thousands of employers who then elect a director from those nominated.

Similarly, the union nominates a candidate, along with others who may be nominated by other members, and then all the members may vote for the member-elected director.”

The union-nominated candidate may or may not be elected (but usually has been), adds Bugden.

Given the directors are all elected rather than nominated, and none are appointed by either a union or a sponsoring employer, Bugden says the board would consider itself independent.

However, he flags concerns about the definition of independence. In particular, to be truly independent, and one of the “one third” that the Coalition has signalled it will enforce if elected to government, there is a requirement that a trustee not be a member of the fund.

“At the moment, that is one of our requirements of our directors, that you can come from anywhere, we’re an open fund, anyone can stand provided you’re a member. Because the view that we take is if you’re a member, then you’re going to have a fairly clear focus on doing the best you can for your members, because you’re one of them,” Bugden says. “And to impose the one-third under that sort of definition of independence I think is pretty restrictive, and I think it’s an ideological matter really, because the same is not going to be asked of retail funds.”

Moreover, Bugden says it’s an issue for the wider industry.

“The industry’s got to really work hard to fight that. I don’t really think that’s the current government’s view. It’s more the coalition’s view.”

As for board composition, Bugden says the board tries for balance in terms of diversity. For the most part, the board has had a 60/40 gender ratio. At the moment, it’s a 70/30 ratio – seven men and three women, an imbalance Bugden says the board is trying to address in its next election.

Bringing expertise to the table

Catholic Super’s board has five sub-committees, each of which includes two or three directors: insurance; audit, risk, remuneration, and investment management.

The latter is perhaps the largest group, drawing on the expertise of three board directors, the chief executive officer, chief investment officer, an asset consultant, two external consultants and several investment team members. It has a two-day meeting each year at which it considers the fund’s performance and recommendations for the board in relation to further strategies.

Bugden says it’s a fairly expert group, noting that when electing members to the board, they search for skill strengths.

“We do our best to nominate candidates for election with the skill sets we require at the time and if necessary we supplement any deficiency by appointing professionals to relevant committees.”

The investment group has the task of determining and appointing fund managers within the strategy the board has set, a responsibility the board has delegated to it.

This allows swift change when needed, says Bugden.

“If we need to move fairly quickly, we can; we don’t have to wait for a board meeting, unless it’s a major change or we need the board’s approval for, say, a change in the strategic asset allocation, which we do once a year anyway.”

The board itself has its own two-day planning session, where it sets its own agenda and receives information from the investment management group to include in the discussion.

This is in addition to meetings every six weeks or so – it used to be a monthly board meeting, but with directors Australia-wide, Bugden says the decision was to make the meeting a full day, but less frequent.

With a changing landscape, reform is a primary agenda item. The fund was early in its application for MySuper in January. The intention, after all, is to grow the fund and, as Bugden notes, Catholic Super is competing for a growing workforce among numerous super funds.

“We just want to be in there doing what we can for members.”

It has initially teamed up with North American firm Segal Rogerscasey in a deal that will see it gain access to US manager research and greater knowledge of US equity portfolio configurations.

Both are now looking to broaden their scope with similar deals with other independent consulting firms in a way that would replicate the global reach of rival firms Mercer and Towers Watson.

Damian Moloney, chief executive of Frontier Advisors, said the deal meets his clients’ needs for deeper global research.

“Our clients have got bigger and more complex and sophisticated and they are looking for deeper research in some regions, and the US is the obvious first place that we wanted to start.”

He said Frontier would gain from Segal Rogerscasey’s knowledge of how to configure large portfolios of US equities, while Segal Rogerscasey wanted to tap into Frontiers’ knowledge of large unlisted asset portfolios, such as infrastructure and property.

Both firms will gain access to each other’s databases and investment management research and staff from Frontier Advisors will visit Segal Rogerscasey’s office in early June to kick-start the relationship.

Moloney said the link-up, which is being branded as the Global Information Research Alliance, would also help each firm share best practice. “It gives us a sense of how other businesses are addressing clients’ needs. We both have our ways of doing things and it is interesting to transfer ideas between businesses. An obvious one is how you communicate with clients.”

The next step for the alliance is for Segal Rogerscasey to recruit an independent investment consultant from the UK, Europe, the Middle East and South America and for Frontier Advisors to establish contact with like-minded firms in Asia.

In the future, the Global Information Research Alliance plans to offer periodic forums to discuss global investment trends, client issues and capital market directions.

The deal re-establishes the connection the superannuation market had with Segal Rogerscasey, when Intech Investment Consultants formed a similar alliance with the Boston-based firm.

Speaking at last week’s ACSI conference in Melbourne in a session on ESG-themed investing, he said his opinion did not necessarily reflect the position of his new employer, but advocated a closer consideration of a universal-ownership approach to investment – that is, being aware of the impact that investment decisions make on the long-term performance of markets.

“Super funds acting as universal owners, and focusing on ensuring well-functioning capital markets, good corporate governance and long-term value creation makes a difference to all,” he said.

‘Universal ownership’ has significance to members, Brandweiner told delegates.

“As universal owners, the requirement to generate long-term sustainable growth in beta matters more to our members than perhaps anything else. And keep in mind of course, that in aggregate, across the system… there is no such thing as alpha. The market is a zero-sum game. If one of us outperforms, probably another one is underperforming,” he told delegates.

Brandweiner said funds spend too much time on manager selection, noting the majority of returns in superannuation funds are driven by asset allocation.

“It always surprises me the extent of focus on manager selection,” he said.

“…It makes me always ask whether we are diversifying the right risks. The reality is that, over the long term, it is the overall economic performance that will influence the future value of your portfolios a lot more than individual stocks or individual sectors that you might own.”

Brandweiner said a focus on generating long-term sustainable returns is also important in order to preserve a degree of equity between the potentially competing claims of different generations of members.

“Very strong returns this year, at the potential expense of longer term returns, is inequitable given the nature of our funds,” he said.

“In fact, with 90 per cent or so of the risk in your portfolios today coming from equity markets, and with sequencing risk so critical as we increasingly move into drawdown phase, smoothing the volatility of equities will become more and more important.”

Not a finite game

Brandweiner said funds can no longer simply allocate into finite markets without a strong understanding of the longer term impact the fund’s decisions and activities will have in terms of the economy, environment and society.

“Traditional ESG tries, perhaps not hard enough, to consider the impact of potential externalities – positive and negative, of course, it’s not all bad things – directly on the share price of the companies that our managers might be looking at.

“But universal owners have to be mindful of the impact of these externalities indirectly on all holdings that you might have across your portfolio. So after the BP accident in the Gulf of Mexico, insurance premiums for all energy companies rose. That’s one little example of what I’m talking about.”

Super funds picking managers, and sometimes stocks, should be doing more to fulfil their obligations, added Brandweiner.

“We need to be active as owners. We need to collaborate in public policy. And we need to be cognisant of the side impacts of every investment decision that is made.”

While Brandweiner said the allocation of capital with consideration of ESG impacts isn’t a “controversial” idea, allocating capital to specifically target an outcome that benefits society “has been a bridge too far for the way we’ve thought about our world”.

“It’s tempting to ask whether it can be done without compromising returns, and so satisfy our fiduciary obligations nice and easily,” he said.

 Of particular concern

Matters that remain unresolved include the current consultation on regulations around the MySuper product dashboard and portfolio holdings.

First State is particularly concerned at whether it will have to classify three types of member instead of two and change its systems to match.

Arnott said questions remain unanswered over whether choice members who are partially invested in First State Super’s default fund are a MySuper member under the regulations or a choice member – a matter complicated when a MySuper product, such as First State’s, has a lifecycle investment strategy that changes depending on a member’s age.

“Because of the lead time, we are making calls now. We knew we had to launch on July 1 as we did not want to make it hard for employers, so they did not have to worry about compliance,” Arnott said.

Development and further delay

By contrast, Sunsuper is to delay its MySuper launch until later this year.

Andrew Nicholson, product manager at Sunsuper, said: “Given the large amount of legislative change this year and to ensure delivery of a compelling Sunsuper offering, we have allowed for additional time beyond July 1 for development and launch of our MySuper product.”

Nicholson added that he recognised that the disclosure of product dashboard and portfolio holdings remained a challenge and that the superannuation industry would need to work closely with the government to finalise these reforms.

David Haynes, project director at the Australian Institute of Superannuation Trustees, said one piece of good news for funds had been the Australian Prudential Regulation Authority’s proposal to delay the disclosure of full portfolio holdings until July 2014.

“We are pleased that the government has deferred implementation of portfolio holdings for six months because that will give the industry an opportunity to digest all the MySuper changes that are going through at the moment.”

Haynes said AIST’s position is not to generally call for delay, but notes “genuine issues that need to be worked through over a reasonable period of time”.

The current consultation for amendments to MySuper legislation closes to submissions on May 15.

Addressing a diverse industry crowd, with several major fund CEOs and CIOs in attendance, as well as numerous asset managers, Nusseibeh’s point was clear: the industry should be changing its emphasis to focus on stakeholders rather than individual members.

In other words, we should be paying greater attention to the impact investments have on wider society and consider adjusting them accordingly.

Increasing the savings pots of members is important, but with the rise of the environmental, social and governance conscience, investment extends beyond the individual.

This is about creation – asking what kind of world we’ll be inhabiting in 20 or 30 years if we’re not conscious of how our investments can affect and be affected by externalities – politics, business ethics, environment and infrastructure, to name a few.

All of us have a stake in all of our savings

It might seem easy to devalue this proposition given the not-insignificant responsibility of a fund to deliver the best outcomes to its members, but Nusseibeh is hardly naïve on the role of a super fund. That and it’s a space he’s highly attuned to given he chairs the 300 Club, which is focused on the impacts market behaviours have on investment. Hermes is also owned by the BT Pension Scheme, which also oversees Hermes Equity Ownership Services, an advisory service with a focus on responsible investment.

As Nusseibeh notes, the onus on industry stewards to grow member savings is, arguably, a duty to attract growth for wider society.

“It ultimately means that all of us have a stake in all of our savings. It’s about more stakeholders than simply those who individually own the assets as individuals within the scheme,” he suggests.

And there is some agency in taking on a longer term consideration of investment, with closer thought to how asset allocations impact the world, this human and earthly collective.

Perhaps a primary issue is the terminology. Have, as Nusseibeh argues, these notions of a “collective” or “stakeholder” society become dirty words since the Reagan-Thatcher rise of Milton Friedman economics in the late 1970s?

If so, and if oil-spills, pollution and a weak economy aren’t enough of a contention for funds, Nusseibeh goes on to appeal to the almighty wallet.

“What happens to our investments if don’t take a long-term governance, environmental and social issues into consideration? What is the result of that on the prices of the assets that we invest in? On the cash flow that these assets generate, because it’s that cash flow that’s going to pay out the pensions at the end of the day?

“I would say it’s a disaster.”

No to near slavery

This taps into a wider issue of industry engagement, not just governance but, as Nusseibeh points out, investors should be holding companies they invest in accountable for risk and operational standards, otherwise they’ll feel it in the share price.

“We’re all rushing into cheap overseas production. Just think about what we’re doing. We’re creating factories around the world that have people in near-slavery conditions.”

This sort of situation has political impact, Nusseibeh says – think, the rise of extreme politics globally – and the end investor will also feel the pain.

It’s a thinking that was canvassed throughout the day. Richard Brandweiner, who has just joined First State Super as director of investment services, argued similarly that a tunnel-vision approach to investment could mean crucial longer term returns get sacrificed in the desire to deliver short-term returns for investors.

Indeed, anxious investors are nothing new, but perhaps the ESG theme is becoming a far greater consideration for an industry having to reshape its approach to how people live.

Nusseibeh argues that there needs to be a different kind of relationship between individual asset managers and their clients.

“The relationship has to be one of fiduciary care with a small ‘f’,” he said.

“We can no longer afford to simply say, for the sake of an example, I’m an asset manager and I’m selling you global equities, that’s all I’m selling you.”

Similarly, funds should be taking a wider, longer term view to how they engage with the world. As Nusseibeh told delegates, a widely integrated approach to ESG investing is doable and not that difficult.

It is in such a good place that as of July 1, 2013, a significant date because Stronger Super comes into effect, Jones completes his second and final term at the regulator.

The reason he cites for his departure is the need for renewal. Like the funds he supervises, good governance and board renewal is important for the Australian Prudential Regulation Authority (APRA).

“I believe that there are opportunities for new expertise to come into APRA as a consequence. And 10 years has been great.”

As chair of the International Organisation of Pension Supervisors and vice chair of the Organisation for Economic Cooperation and Development Working Party on Private Pensions, Jones believes Australia stands out globally in governance.

“We have an industry that understands its obligations, an industry that’s generally honest, responsible and capable.“

It’s also an industry that seems to have received him well, particularly during this period of reform.

Speaking to some within the institutional sector, it’s clear that Jones has proven himself approachable, knowledgeable and candid. It’s a cooperative approach that Jones himself talks about a great deal.

“It works best for us to have a positive engagement with the people whom we supervise. We need to work on a relationship of trust, we need the industry to be able to come to us and say, ‘We have this particular problem’ if that’s the circumstance.

“As a regulator, you don’t like surprises, and the industry doesn’t like surprises either,” he says, adding that it’s the industry’s expertise that can ease the challenges of new regulation.

Jones’ position is also one that many acknowledge has been a tough one. The APRA team working on the Stronger Super reforms is undoubtedly working hard to meet legislative deadlines and inform an entire industry of its new obligations.

Jones, however, says it’s rewarding seeing the culmination of a very substantial reform process.

“APRA had believed for many years that we had a regulatory gap, and that gap has now been filled by the government giving APRA the standards-making powers.

“We actually believe that we will be far more effective in supervising Australia’s superannuation funds than we have been in the past. And given the size of the industry, it’s a valuable thing.”

The go-to guy

In conversation with Jones, it’s interesting to observe the way in which he responds to questions. He’s direct, at times forthright, and yet, occasionally he breaks out into a grin, displaying a passion for his work that suggests he’s truly invested in making the industry a stronger one.

As Jones notes, Australia’s super system is a compulsory one, under which people quite appropriately have expectations of an effective industry.

“The regulator, the funds themselves – all should be working to achieve the best outcome, which is to maximise retirement income,” he says.

“And under a compulsory system, the obligation is even greater than it is under a voluntary one. Under a voluntary, you can opt out. People here don’t have any choice. So we as the regulator, and the industry, has an obligation to ensure the best possible outcomes. And, I think, to a large extent the industry works fairly effectively.”

Swings and roundabouts

Developing and implementing behavioural standards, which Jones emphasises is what APRA is here to police, has delivered its share of rewards and challenges. Jones concedes that, while the general objective has been fairly clear from the start, the process has sometimes been less so.

Jones is referring primarily to the legislation covering Stronger Super. Created in four tranches, he says it requires more coordination of the political and regulatory processes than normal.

“Because you focus very much on a deadline and you’ve got a legislative process as well, it has been, at times, fairly complex. And it has been a process that requires a lot of consultation in the sense that everyone can agree on what the objectives are, but to use that old cliché, quite often the devil is in the detail, and the details in the retirement income system are extremely important.”

There’s some flexibility, says Jones, pointing to the delay in implementing new statistical collections. He adds the reminder to superannuation funds that APRA doesn’t impose the deadlines – it comes from legislation. It’s a significant point given the confusion that can befall a fund not paying close attention to the new requirements. While there’s no cut-off date for MySuper applications, after October, funds without MySuper authorisation will not be able to accept default income.

It’s not the end of the world, Jones notes, but a lot of the major funds want a piece of default-sector pie and already have their applications in. And the funds that sought APRA’s engagement early on in the process are enjoying a smoother ride.

“As you’d expect, the people who came in with their MySuper applications early on, generally speaking were the people who were most prepared. The people who talked to their supervisors in the lead-up to Christmas, there were no real surprises with most of those.”

That Jones warns funds of complacency when it comes to applications isn’t surprising. At CMSF earlier this year, he delivered a big watch-out speech, signalling that the lead-up to July 1 is a crucial time for funds still sitting on the default-fund fence. The issue, Jones says, is that they may end up having to deal with more substantive issues than anticipated.

The number of MySuper applications has fallen below expectations, as Jones revealed at CMSF. An initial run-around with industry led to an estimation of 250 applications, a figure that has since been pared down to 100 to 120. But Jones says APRA has remained “agnostic” about the number of applications.

“It was simply that, statement of fact, when we first started talking to industry, I think a lot of participants were of the view that we must have a MySuper licence.Now some trustees are looking at it more carefully and saying, well, no, we can manage quite well without a MySuper authorisation.

“And as more information came out about MySuper, the generic and tailored products and so on, people realised they probably didn’t need as many of the variations as they might’ve thought they needed. And so bit by bit we’re changing. We still need to see where some of the corporates will go.”

Jones says there have been no real surprises so far, but jokes that “we’re not there yet”.

“Ask me in a couple of months’ time when applications come in from people that we’ve not had any engagement with. You might get a different response.”

Consolidating an industry

That there will be a sizeable shift in default funds is clear, and Jones acknowledges the industry will be changing, and that there will be more industry consolidation.

“I don’t think that this is necessarily the catalyst, but there will undoubtedly be more mergers. We’re seeing industry consolidation all the time. Compared to many other parts of the financial sector though, it’s still relatively unconcentrated.”

It’s a consolidation that Jones says has been going on for a long time.

“When we did the first set of super licensing, which was 2004 to 2006, that led to the number of trustees going from around 1200 to something like, say, 350. That was in two years, from mid-2004 to mid-2006. A lot of trustees left the industry during that first licensing period,” he says.

“I don’t necessarily think that MySuper will speed up the consolidation process… it forces people to stop and think, which is very useful.”

Jones rejects speculation that downsizing the industry is APRA’s objective in order to have fewer funds to police.

“APRA’s objective is to get the best possible outcome for members. Now if it turns out… there are substantial benefits to members from fewer larger funds, then of course that’s good.”

Rather, the regulator is setting its target firmly on the scale of funds, more particularly, their performance.

“If you are small and you are an outstanding performer, we’re quite happy to supervise you, we’re quite happy for you to be small. There’s no problem at all.

“The problem is with people who have poor performance, and their poor performance is caused by a lack of scale.”

In relation to how smaller funds will cope with the costs of compliance, Jones acknowledges that fixed costs mean greater costs for the funds. But he says it’s the case in any regulated industry where the costs aren’t variable.

“I’m certain that the overall cost of complying with statistical reporting may be roughly the same for a big firm as a small one. But clearly, if you have a much smaller number of members, it’s going to be spread over a smaller number of people.