Industry funds grow in a low return environment

Rod Myer
Sep 14, 2016, updated Sep 14, 2016

Low returns are slowing fund growth. Photo: Getty

The low returns in fixed interest and cash and turbulence in share markets are slowing the growth of superannuation funds under management (FUM), according to research group DEXX&R.

But in this low income environment, industry funds are strongly outstripping private sector competitors.

Over the full year industry fund FUM increased by 6.4 per cent, or $26.7 billion, to $443.9 billion at June 2016 compared to $417.2 billion a year earlier.

Private sector funds under management grew 2.1 per cent, or $3.5 billion, to $171.1 billion at June 2016 compared to $167.5 billion a year earlier.

And FUM of the combined private sector and industry funds rose 2.7 per cent to $951.7 billion, up 2.7 per cent from $927.0 billion a year earlier.

Of this amount $740.4 billion is held in accumulation accounts of those still working and $211.4 billion in the allocated pensions of those in retirement.

As the chart below from DEXX&R shows, FUM shrank in the December half in 2015 and the March quarter in 2016.

Of the top five managers of private sector funds, AMP recorded a 3.3 per cent increase in FUM to $32.5 billion,CBA recorded an increase of 2.3 per cent to $41.9 billion and Westpac recorded a 2.6 per cent increase to $29.9 billion.

The top five industry fund managers performed strongly as the following table shows.

The largest individual funds are made up of a mixture of industry and private sector funds. (click on the pie chart for a closer view.)

One interesting aspect of the research is the strong growth of industry funds in pension phase. That category grew 12.2 per cent for the year while the accumulation phase FUM grew only 5.8 per cent.

The reason behind the jump in allocated pension FUM is the ageing of the population as baby boomers move into retirement.

However the percentage of industry FUM in allocated pension phase is far lower than for the private sector funds.

DEXX&R managing director, Mark Karchor, told The New Daily that investment advisors had a history of directing clients into private sector funds.

Industry FUM make up only 19 per cent of the allocated pension market while private sector funds accounts for 81 per cent of the market. In the accumulation phase industry FUM accounts for 55 per cent of the market while private sector funds account for 45 per cent.

In the total market industry funds account for 47 per cent and retail funds 53 per cent.

Returns are far more influential in building FUM than super contributions, Mr Karchor said.

The DEXX&R research does not include public sector or self managed super funds.