Consolidation in the DC sector is inevitable and should drive the scale to deliver the investments in infrastructure that savers need to fuel their returns, said former Tasmanian senator and architect of the Australian DC system Nick Sherry.
Sherry, who was the first Australian Minister for Superannuation & Corporate Law, told Corporate Adviser Master Trust & GPP Conference delegates that it was ‘sad’ that the UK DC pensions system had not developed expertise such as that held by Australian infrastructure asset managers – Macquarie Bank and IFM, and that UK funds were not joining together with US, Australian and Canadian peers in big infrastructure investments. Pensions minister Guy Opperman had earlier called for UK DC providers to come together in an IFM model, which sees over 20 Australian super funds purchase infrastructure through a commonly-held entity.
He outlined the rapid pace of consolidation in Australia, where the number of employer-sponsored pension funds 20 years ago was 2,948, but that has fallen to 156 today. He said that 90 per cent of members’ assets and 90 per cent of members are now in the top 20 funds.
Australia has a compulsory system that has grown very rapidly and now has Aus$3.3 trillion of assets (£1.75 trillion) -170 per cent of GDP, the fourth largest DC system in the world for a country of 26 million people.
“It’s a pretty obvious challenge – where do you invest that money in a diversified way? And obviously, infrastructure is an important component of investing what is a very, very large system.
“We’ve got 20 funds with Aus$50 billion or more. And the smaller providers are rapidly disappearing. A small provider in Australia is less than $10bn (£5.3bn). They are considered not to have a future. And the regulator and the policymakers and the funds themselves have said if you’ve got less than $10 billion, you’ve got no future. It’s a scale game.
“This is important for infrastructure because in order to invest, whether you invest, pass your assets over to other providers to get scale increasing, you need expertise. Investing in infrastructure is technical. It’s complicated, and generally the fees and costs are higher. Larger funds are increasingly directly buying infrastructure assets or grouping together with Canadian and US funds. It’s a bit of a note of sadness that there’s a notable absence of UK funds.
“Here you have one of the largest pension systems in the world, but it’s the Canadian and US funds that are clubbing together with the Australian funds to invest in Australia and elsewhere globally. When they buy an asset that is listed, they’re generally taking it private. Approximately 20 per cent of fund assets are invested in infrastructure, both directly listed infrastructure and through a range of different mechanisms.