Search for the biggest fat cat of the Australian super fund industry

Illustration: John Shakespeare

Being a super fund manager is hard yakka. You have to sit around being showered with millions of dollars of other people’s money week-in, week-out, simply because the government has decreed that 9 per cent of Australian salaries have to go into superannuation. It’s a pain.

Then there are the high professional risks of fun management, such as spilling aioli on your Salvatore Ferragamo tie over lunch at an upmarket city nosherie while brokers and other middle-people annoyingly fawn over you for a slice of your fees.

They deserve every cent they get those fun managers, all 2.35 trillion cents a year. Yes, that’s the number, or close enough to it. Fun managers rake out roughly $23.5 billion in fees each year from Australia’s $2 trillion superannuation system. It mostly goes to the banks. Their fees are the highest and they control the greatest chunk of the market.

Is your super invested in a Fat Cat fund? Illustration: Matt Davidson

Chris Brycki is out with his Fat Cat survey again on Monday. Brycki is a rival of sorts to the established super fun industry. He runs a small, low fee ETF (exchange traded funds) business and reckons it is only a matter of time before technology disrupts the super fun sector – much in the way the internet disrupted media and virtually killed stockbroking, much in the way the renewable energy technology now threatens fossil fuels.

It’s a fair bet the banks may be tinkering with the idea of spinning off their wealth businesses – National Australia Bank/MLC, Westpac/BT, Commonwealth/Colonial and ANZ/OnePath.

For, if Brycki is correct with his technology thesis, the first cab off this rank – or first gravy train out of the station – will likely get the best price. The fees are simply unsustainable. The quandary however with divestment is what to replace it with. In what other profession can you make off with an average of one quarter of somebody’s life savings without even talking to them? Correct, ye olde bank robbery.

Last year Brycki analysed 500 funs. This year it is 3390. As the super fun industry was loath to give him the information – knowing he would slap them around the chops with their own data – he had to build a computer program himself to garner it.

Those 3390 funds represent $570 billion in funds under management or one quarter of the $2 trillion in the system. Fees were $6.7 billion, making the average fees 1.17 per cent.

Brycki then ranked the funs into five sets of cats: Fat Cats, Flabby Cats, Fair Cats, Fine Cats and Fit Cats. Fat Cats are the worst offenders on the fee front and poorest performers on returns.

Who will take the trophy this year as steward of the most Fat Cat funs? Will it be ANZ for the second year running? Find out on Monday. We will disclose the best and the worst of Australian super fun managers.

Fees fatten the cats

Unsurprisingly, Brycki says the same patterns emerged this year as last. The common denominator in Fat Cat funs was their high fees. Industry funs did better than bank funs, the difference again equating to fees charged.

“If you are in a fund which charges high fees, there is a much greater chance it’s going to be a Fat Cat; 22 per cent to 40 per cent of all funds that charge above 1.5 per cent per annum are Fat Cats. Equally, funds that charge less than 0.5 per cent have a 30 per cent chance of being a Fit Cat,” he says.

How’s this for a sick metric though? On average, Fat Cat funs ate up 31 per cent of investor returns over the past five years.

“Before fees, Fat Cat funds returned 8.4 per cent but charged 2 per cent fees so investors ended up with just 6.4 per cent.”

Some 44 per cent of retail super funs, mostly bank or AMP-owned, are either Fat or Flabby Cat compared with 21 per cent of industry funs.

Industry funs, despite their encroaching spend on advertising, had the most Fit Cats (21 per cent) versus 14 per cent for retail super.

A note on that; the rationale for deregulating industry funs has been competition. If an industry fun gets bigger, so the argument goes, it can reap benefits of scale and drive down admin fees. In some cases however, admin fees have doubled.

Clients of AustralianSuper, where some fees have increased, may also have noticed they sponsor Nine Network’s The Voice.

They should call on the AustralianSuper board to get up next year with the Madden Brothers to perform their hit single Lifestyles of the Rich and Famous, perhaps even some funky dance moves too. That has about as much chance of lifting performance for members as running ads between songs.

Government eats its own

To Fat Cats of another species. The Senate pushed through two amendments to the government’s multinational tax avoidance bill this week. Alas, as they were good amendments, unlike the rest of the bill, the government promptly killed the whole bill, its own bill.

So it is that, while it attempts to foist a GST on its populace, the government has delivered a reprieve to multinationals and the super wealthy – on grounds they may be kidnapped if they disclose their financial information.

Truly the threat of kidnap is now real. It is proven. The government has been kidnapped by multinationals and billionaires.