A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
Betashares’ super play faces an uphill battle
Rather than pursuing organic growth by throwing open its doors to prospective superannuants like rival player Vanguard, ETF provider Betashares has bought Bendigo Superannuation, which currently has 19,000 members and $1.4 billion in assets across its super and pension products.
Betashares enjoys significant name-brand recognition among advisers and younger self-directed investors, and has leveraged its on-the-ground distribution network to greater effect than some of the global providers in Australia. But any new entrant to the superannuation market now faces significant challenges, some of which are native to low cost providers.
Chief among those challenges is one that’s impossible to avoid: scale. Betashares is coming into the market with a $1.4 billion fund where the largest player now runs some $300 billion. It’s APRA’s belief that funds must sit above a certain quantum of AUM – around $30 billion, but preferably higher – in order to be “competitive”.
While arguments persist that AUM size has little to do with investment performance, APRA holds that it does (or should) bring down cost to member. Betashares’ wider AUM of around $30 billion – and the fact that it is a low cost provider – will be some help on this front. But size has benefits to funds themselves, including the ability to spend big on nationwide marketing campaigns without slugging their members too much.
Another challenge will be differentiating the new product on features other than price in an environment where the performance of the indices its existing product suite tracks is expected to be lacklustre. If you want protection, goes the saying, you have to pay for it. The rise of Betashares and other low-cost ETF providers occurred against a backdrop of falling interest that drove fairly spectacular index returns, and so inflows.
But market beta no longer looks scorching hot. And while superannuation is a long-term investment – and it’s impossible to argue with the benefits of simply buying and holding the index for decades – superannuants, when they do pay attention, pay attention to the short term.
“While our immediate focus for this acquisition is a smooth transfer of ownership, we intend to invest further to extend the existing investment offering, as well as adding further financial education and member tools in order to position the fund for sustainable growth,” said Betashares chief Alex Vynokur said. “These initiatives plus a focus on significantly growing the fund’s scale are all aimed at delivering enhanced member outcomes over the longer term.”
While the ultimate form of the Betashares offering is still up in the air, the arrival of a new competitor in any highly consolidated market is cause for some excitement. Superannuation has never been accused of being a highly competitive market, and it’s still unclear whether the advent of the megafunds will change that dynamic. As super keeps getting bigger, smaller and lower cost players might yet carve a niche for themselves.
