Competition in the NZ superannuation master trust market has shrunk by a quarter in less than a month following the exit of ASB last week, leaving two passive players controlling 80 per cent of assets under management.
NZX paid $25 million in cash for the $1.8 billion ASB master trust in a deal that came just weeks after Fisher Funds picked up the almost $200 million Aon employer super product along with its $800 million KiwiSaver scheme.
The latest move will see the NZX-owned SuperLife leap to second in the now four-player game, lifting funds under management to $3.2 billion and vying for top spot with the $3.6 billion AMP NZ Retirement Trust (NZRT) in a mostly static market.
Based on figures in the September quarter EriksensGlobal master trust survey, the NZRT manages about 42 per cent of the $8.5 billion total market while the combined SuperLife/ASB schemes equate to 38 per cent.
NZRT converted to a mostly BlackRock-managed index offering this quarter joining ASB and SuperLife in the passive investment camp.
The Mercer master trust reported about $800 million at the end of September compared to a combined Fisher/Aon pool of $850 million, according to the EriksensGlobal report. Both Fisher and Mercer follow a more active investment style.
Despite a handful of stand-alone employer super funds moving to master trusts in recent years, the sector has been in sunset phase since the dawn of KiwiSaver.
However, some traditional employer schemes retain substantial membership and long contribution tails, even if closed to new members.
The ASB master trust, for example, services over 17,500 members and 100 employers, the NZX release says. But about two-thirds of the ASB scheme assets and 80 per cent of members are concentrated in the now-closed State Services Retirement Savings Scheme (SSRS).
A pre-KiwiSaver scheme servicing state employees such as teachers, the SSRS reported about $2.1 billion under management – split $1.2 billion to ASB and the remainder to the AMP NZRT – and over 25,300 members at the end of June.
“There has been a steady reduction in membership during the year. The count of withdrawals has continued at a fairly regular number each quarter,” the SSRS annual report says. “… approximately 70% of the membership at 30 June 2021 is now aged 50 and over so are eligible to withdraw their money from the SSRSS if they leave the State Sector. It is reasonable to expect the number of withdrawals to rise over the next few years.”
The SSRS report also reveals a lower-fee deal with NZRT negotiated post the AMP NZ BlackRock transition that will see “approximately 65% of the AMP SSRSS members, who are invested in either the AMP conservative, balanced or growth fund, their fees will be less than or equal to the new fees that AMP KiwiSaver members will be charged for the equivalent funds”.
Mark Peterson, NZX chief, said the master trust market dynamics would remain positive for “quite a while yet”.
“There is an element of concentration risk but we’re confident the it will be a long time before the employer super fund sector runs down,” Peterson said.
The ASB master trust would add up to $4.3 million of annual revenue to the Smartshares balance sheet, the NZX release says, “excluding integration costs, amortisation, and interest expenses”. Acquisition costs would amount to about $1.3 million, to be booked in the current year NZX accounts.
Smartshares total assets under management would rise to about $8 billion including the ASB master trust with perhaps another $400 million to $500 million coming in the door during the imminent default KiwiSaver regime change. The NZX-owned SuperLife KiwiSaver scheme is one of the six newly appointed default providers set to benefit as five incumbents exit the scene in a transition process due to start on December 1.
Peterson said the ASB master purchase and looming default KiwiSaver top-up brings much-needed scale to the NZX funds business.
“Scale is important in passive funds management, it gives us options to create further growth and value,” he said.
As well as driving incremental profit for the NZX index funds business, he said further scale could have wider spin-off benefits for capital markets.
For instance, Peterson said scale would enable Smartshares to develop more products and bring further liquidity to NZ markets.
He said the NZX saw ongoing synergies between its funds management, investment platform (Wealth Technologies) and other market activities.
Both NZX funds and platform businesses reported solid revenue and asset growth during the 12 months to September 31.
Wealth Technologies has about $8 billion in funds under administration as at the end of October with a further influx expected before year-end, Peterson said.
Meanwhile, the ASB master trust transition will go through several phases before the assets arrive in Smartshares funds.
“There’s a series of steps and we’ve allowed some time for the shift,” he said.
Adam Boyd, ASB head of wealth, said in the statement that bank-owned manager would concentrate on its KiwiSaver and retail investment offerings, now advised by BlackRock.
“By focusing on these core offerings, we can continue to invest in enhanced customer experiences and performance,” Boyd said.
It is understood that the Commerce Commission had no objections the imminent master trust merger.