Intense regulatory scrutiny over excessive fees and poor returns has triggered a massive consolidation for super funds. Most super funds are either considering a merger, in the middle of one or emerging on the other side of one. One thing we can be certain of is that the consolidations will continue, and more funds will exit the market.
What does this mean for the combined entities that emerge from the ashes? From my experience working with pension funds for over 20 years, here are three salient points that I urge you to consider as you forge a strong path forward.
Achieve cost-effective scale by simplifying your IT architecture
With the APRA’s intense oversight on costs and performance, superannuation funds are pushed to merge and find ways to accelerate member outcomes at scale.
Here one of the most important discussions is how to revamp target operating models, with focus on improving operational efficiency and scaling sustainably. How to simplify the current infrastructure that can translate into less interfaces and less global IT costs? Another key consideration is the consolidation of disparate data into a single source of the truth, empowering various data consumers with insights for better decision making.
With mounting pressures on costs, some funds have embarked on an internalization path. The benefits from lower fees, access to a wider investment universe, and the ability to adjust to fast changing market conditions are clear. CEM Benchmarking data supports the case for internalization. However, funds considering this path will need to come to terms with governance changes, talent acquisition and getting the right infrastructure in place to reap the full benefits.
Make the most-informed decisions with real-time analytics
The increased diversity in market activity, myriad of data sources, investment complexity and market volatility are pushing execution, risk management and processing capabilities to new levels. Combined with an increased focus on sustainable investing via ESG considerations and increased regulatory demands, the need for accurate and timely total portfolio views has never been more important.
Key to making the most informed investment decisions is to provide timely data to all relevant stakeholders be that the CIO, the portfolio manager, the compliance team or the risk and performance analysts as and when needed. Real-time analytics on effective exposure, risk sensitivities, concentrations and liquidity allow super funds to be closer to their investment portfolios—not only to save on mounting fees from external managers, but also as a means of having a better risk overview and control across the entire book of business.
This requires the consolidation of data across all asset classes in the public and private markets (from internally as well as externally managed sources) into one core investment data set. It must then be robustly managed and governed, and optimally processed across the entire investment value chain with sophisticated compliance, performance and risk management. This needs to be applied throughout your complex portfolio structure with look-through capabilities.
Leverage global best practices from a technology partner’s experience with a growing community of pension fund clients.
When evaluating a new partner, consider their client list. Do they have a large asset owner community, including the most progressive pension funds in Canada and Europe? A partner with this checkmark means you can benefit from international best practices and a high level of operational efficiency. Ask potential vendors for specific examples of how they’ve helped super funds like yourself. The quicker you can reduce operational costs the sooner you’ll see time to value.
It's also important to consider the partner’s stability. How many years have they been serving pension firms? What’s their ownership structure? Strategic vision and roadmap? Do they re-invest in R&D? Do they have a continuous learning and develop plan to ensure upskilling of end users so you always get the most value from your system and access the latest innovation?
Last but not least, consider the delivery method of your tech. The cloud is one of the most important levers in a modern operating model. I encourage you to look for a vendor that has a proven SaaS delivery model across the entire value chain. This allows you to offload cumbersome IT processes, such as installing, configuring, upgrading, and running software. Without the burden of managing IT applications, you can free up time to focus on your strategic business goals.
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