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Australia’s super industry has seen a
wave of fund and service provider
consolidation in recent years. It is now
witnessing a significant further consolidation
of the super administration market, with the
Link Group, the owner of AAS, buying AAS’s
major competitor, Superpartners.
This consolidation comes amid a rapidly
changing environment with technological
disruption forcing funds to look closely at their
administration and evaluate the pros and cons of
outsourcing and insourcing.
A leading analyst believes the consolidation of
super administration providers could lead to major
changes in the administration market, including
higher costs; and, amid a raft of technology
upgrades from administrators, it could also
hamper innovation for some time.
“That is a massive consolidation of
administration into one area,” says SuperRatings
chief executive officer, Adam Gee. “Our concerns
are around the level of competition we’re seeing
in the market place.”
But administrators themselves argue that
greater scale will lead to efficiencies, and that
platform-agnostic innovation will continue.
LINK BUYS SUPERPARTNERS
In September last year, Link Group announced
it would buy Superpartners, the administrator
owned by major not-for-profit funds,
AustralianSuper, Cbus, HESTA, HOSTPLUS and
The sale followed a tough time for
Superpartners, which had reportedly struggled
with implementation of an IT overhaul.
According to SuperRatings, some
22 million members are administered in Australia.
Superpartners administered 22 per cent, or 4.8
million of those. Link’s AAS administers some
18.9 per cent, or 4.1 million.
Combined, they will have a 40 per cent share
of the total market. But their dominance of the
not-for-profit sector will be even greater.
“The market has shrunk considerably,” Gee
says. He notes the market used to have six to
seven reasonably-sized players, many of which
have been bought by AAS, including FuturePlus
and PSI Superannuation Management. “
Russell and CitiStreet also used to be players,
but Russell’s operations moved to IBM and after
a number of changes the Citistreet administration
business, was ultimately bought by Sunsuper and
internalised,” he says.
INSOURCING VERSUS OUTSOURCING
The shake up comes as funds grapple with a
rapidly changing regulatory environment and
technological disruption, which is prompting a
focus on how to best manage every aspect of the
fund, from administration to investments.
A key decision is whether to insource or
outsource administration and other functions,
such as investments.
Gee says outsourcing can reduce risk in a range
of areas, particularly in relation to insurance,
whereby an administrative error can be extremely
costly. “Specialist administrators
also tend to do a reasonably good
job of it,” he says.
Insourcing is also expensive. “If you set it all up
yourself, you generally buy a system off the shelf
and that can be expensive and then you need to
find the staff to support it,” he says.
But insourcing administration arguably gives
funds greater control and flexibility in an age of
rapidly changing technology.
Gee says, for example, insourcing allows
funds to own and access their data as and when
they want. “Control of your own data is very
important,” he says.
Dr David Knox, senior partner at Mercer, says
technology is a major driver in the administration
space and is focusing funds’ minds on the
insource verus outsource question.
“With the digital revolution, administrators are
going to have to engage with members using the
new technology, whether that is mobiles, apps or
whatever is new,” he says.
“Super funds themselves and trustee boards
are going to have to look at what’s the best way
for each fund to engage with members, and
what’s the most effective administration platform
or approach to deal with their members. That
may differ from fund to fund. It’s not necessarily a
Knox says that in-house administration means
funds can tailor it more to their own needs.
He notes that the impact of technology on
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