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Super sized opportunity in Australia

Superannuation funds mean big business for asset managers in Australia. But the AU$1.5 trillion “super” industry is also facing significant challenges, in times of unprecedented change.

The Australian government is in the throws of introducing a package of reforms to boost its citizens’ retirement savings through superannuation. These so-called ‘Stronger Super’ initiatives include abolishing tax on superannuation contributions for lower-paid workers. The government is also raising the proportion of salaries that employers are required to put into employee pensions, from 9% to 12%.

Most importantly for the investment sector, changes are afoot behind the scenes of superannuation funds, in the back-office environment. For lower fees and charges, the SuperStream element of Stronger Super reforms aims to considerably reduce the processing costs of retirement fund management in Australia, by phasing out paper-based processes and making electronic transactions mandatory. Enormous emphasis is now also being placed on the transparency, quality and effective management of superannuation data.

In other words, there has never been a greater need in the Australian investment industry for streamlined, highly efficient operations. What’s more, as “super” funds continue to grow at a dramatically fast rate, asset management platforms must increasingly be able to handle a more diverse range of global financial products, and account for these instruments on an international basis. All these requirements, combined with the government’s drive to cut processing costs, are moving asset management in Australia from an investment accounting focus towards a fund administration approach, with the overarching aim of making all fund administration tasks as efficient as possible.

At the same time, fund administration is itself becoming a more competitive business. Citi and State Street have recently returned to the full service market, taking care of fund administration as well as custody for major asset management clients. With these two big banking names now treading on their toes, many rival third-party administrators are taking a long, hard and overdue look at their legacy platforms, which have suffered from a marked lack of investment in recent years.

So, as the super reforms continue, Australian funds and fund administrators certainly face operational challenges. There are, however, major opportunities for them too. With a more consolidated, streamlined approach to fund administration data, asset managers and asset servicers can substantially increase efficiency and reduce processing overheads. In turn, they will not only satisfy new state regulation but also be able to expand more easily into new products and instruments.

Above all, with this kind of smart scalability at their disposal, firms will be putting themselves in a far stronger position for growth and profitability. And “super” funds will have an even better chance of living up to their name.


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