How fast is super growing?

13-02-18_36_Presentation1

When the world is running down, you make the best of what’s still around. Title of one of my favourite Police tracks from their classic 1980 album, Zenyatta Mondatta, and a hint at the state of the super system – growth is gradually slowing.

So here are the answers just in case the CEO or the board happens to ask you:

The Tria Super Funds Review 2012-13 shows that for the large super funds universe, net inflows for 2012 were ~$42bn.

For SMSFs, the figure for 2011 was $21bn, and we expect it to have been similar in 2012 (actual data won’t be available until mid-2013).

So how fast is super growing? The organic growth rate for large funds is 5%. For SMSFs it’s not much different at 5.7%.

Organic growth (defined as net inflows as a % of average assets) of 5-6% is not bad, but it’s a far cry from the double digit growth rates the industry got used to over many years. Look at today’s chart and organic growth looks pretty flat at first glance. But it’s actually softening.

Net inflow of $42bn sounds like a lot of money, and it is. But in the context of a $1.4 trillion system, and large fund assets of $855bn, it’s more finely balanced than it appears. Relatively small movements in contributions or outflow rates can move net inflows dramatically.

As it happens, $42bn was an increase from 2011’s net inflow of $39bn. That’s good. But keep in mind that 2012’s inflows were boosted by $5bn via top-ups of closed public sector defined benefit schemes: http://www.triapartners.com/triapartners-blogs.php?article=content/Blog-Super%20contributions%20boom?&type=NzE= .

So in fact, 2012’s net inflows were not as good as they appear, and actually lower than 2011 in underlying terms. Strip out those DB top-ups, and the organic growth rate is 4.6% rather than 5%. This implies a decline in organic growth from 5.3% to 4.6% over 2011-12, a fairly large decline in a single year.

Why is growth slowing?

– The problem is not employer contributions – they are still growing at 7-8% pa – and are now $65bn excluding 2012’s one-off DB top-ups..

Member contributions are weak, having been stuck at $16bn since 2009. That’s not helping, but member contributions are not a huge inflow category.

The bigger issue is that outflows are growing by 6-6.5% pa – now $92bn – and less is being recaptured by other large funds. Increasing proportions are going to SMSFs, or leaving the system due to an aging population.

There’s not much funds can do about the latter. But the impact of SMSFs can be influenced, and it’s becoming a significant drag on the net inflows of large funds.

Large funds don’t lose huge numbers of members to SMSFs – a fairly consistent average of 50,000 members pa. But those departing members take a lot of assets with them – we estimate $17bn in 2012.

Against total large fund assets of $855bn, $17bn doesn’t seem like that big a deal. But compare it against large fund net inflows:

– Large fund net inflows: $42bn.

– Underlying net inflows after DB top-ups: $37bn.

– Underlying net inflows in the absence of SMSFs: $53bn.

This suggests SMSFs are draining over 30% of large fund net inflows, and that in the absence of SMSFs, the organic growth rate of large funds would be a much healthier 7%, instead of 5%. That’s significant.

This is an average of course – for funds with older, higher balance members, the impact may be higher.

Super is a large system, with more than $100bn flowing through it each year, and continues to offer huge potential to participants of all types. However the growth backdrop is increasingly challenging, and for large funds, the impact of SMSFs on their net inflow is hard to ignore.

Posted In: Trialogue