An ASIC report notes the boom in demand for this asset, saying it heightens the need for “better-quality data” about the size of this sector where estimates range between $1.8 billion and $188 billion.
CPA Australia has weighed into the debate about the cost to oversee the industry, adding its voice to those who argue the fee structure favours the larger funds.
Weaven on fund admin, insourcing and globalisation
(pictured: Garry Weaven)
Garry Weaven, chair of IFM Investors and founder of several service companies owned by industry funds, has said there are some big challenges facing funds. And member administration, once the “poor cousin” of super, is now in the front line.
Speaking via a webinar organised by investment analyst and meetings organiser Stewart Oldfield of Field Research last week, Weaven said that administrators were at the forefront of technology and regulatory change and needed to keep across developments in each.
From his time at SuperPartners, which he founded on behalf of several big funds including AustralianSuper and Cbus Super, it was clear that the sector represented the “poor cousins” of superannuation in terms of resourcing and attention.
You could tell, he said, just by looking at the office space occupied by administrators compared with other fund-owned organisations he helped establish such as the former Industry Fund Services (which spawned Frontier Advisors) and ME Bank, as well as the big funds themselves.
One of the challenges funds had faced was that they wanted to get the cost benefits of pooling backoffice functions but they also wanted to differentiate their services.
Asked if the funds had seen a change with the “for profit” administrator (Link’s AAS) compared with the SuperPartners model, Weaven said that he was of the view that the funds were relieved to get the issues that came with SuperPartners – including two failed IT projects – off their backs and had not seen much of a difference.
Link Group reached a heads of agreement in 2014 to buy SuperPartners, which was consummated last year and will be fully transitioned by the end of this year.
Following the deal, the funds now had a clearer line on goals and targets, Weaven said. At SuperPartners there had been too many projects on hold due to the IT issues for them to look forward. Now the new administrator had enabled a better sense of direction.
Still, the insourcing trend by big funds would not escape the remaining administration companies. Weaven said that, for them, the most likely areas susceptible to insourcing were those dealing with immediate member contact such as call centres and financial planning. (He noted that he was no longer close to the administration sector.)
Generally, insourcing would mainly focus on investments but could also include admin and insurance. Insourcing had also been a challenge for IFM, he said.
IFM had diversified its client base, however, through its globalisation over the past 10 years, which started mainly as a means to improve the manager’s capability in private equity and not solely concentrating on infrastructure.
IFM now has 91 clients based in North America, 35 in Europe and the UK and 60 in Australia. The firm has a “handful” of clients in Asia.
A challenge for the funds, in turn, was the continued trend to further retailisation in the industry through the growth of the SMSF sector, Weaven said.
He seemed ambivalent about further possible amalgamations among funds, saying that the trend “waxed and waned” among funds. He noted, though, that there was recent evidence that cost increases had been proportionately greater in some very large funds than in medium-sized ones.
