February 18, 2022

Market Spotlight: Aussie pension mega funds seeking growth with cross-border M&A

By Iwen Chen, Head of Australia and New Zealand, Datasite

 

For a long time, Australia’s pension system was characterized by a proliferation of small-scale funds. This is beginning to change under the direction of the Australian Prudential Regulation Authority, and the investment strength of the country’s pension funds looks set to flourish.

The country’s pension sector was worth around US$2.5 trillion as of end-September 2021, representing an 18% year-over-year increase, per figures from the Association of Superannuation Funds of Australia. According to the Organization for Economic Co-operation and Development, that US$2.5 trillion sum is the fifth-largest pool of pension assets in the world (after the US, UK, Canada, and the Netherlands).

The financial services regulator is looking to improve the output of some smaller and historically underperforming funds, as well as to curtail inefficiencies such as high fees. This has led to a bout of consolidation of funds over the last year. Between October 2020 and October 2021, there were a record merger of 15 Australian pension funds.

 

Superannuation funds to power M&A

Ultimately, the superannuation space in Australia—where pension saving is compulsory for 30 years—will center around a handful of better-performing and more globally competitive mega funds in addition to a few specialist funds. Just three years ago, there were more than 200 superannuation funds in the country.

Onlookers expect Australia’s growing pension players to seek out major opportunities beyond their own borders for the sake of risk diversification. The presence of large stockpiles of superannuation funds are now ready investment capital as the current reforms are enabling them to be competitively performance driven.

Many of the country’s pension funds are already making it known that they won’t be shy in pursuing big-ticket, cross-border M&A. In just one recent example from December 2021, pension fund Sunsuper entered into a binding agreement (along with Australian sovereign fund QIC) to acquire Evolution Healthcare, the second-largest corporate hospital platform in New Zealand.

Get a deeper look at M&A across APAC and see how the various sectors fared in 2021, including league tables and a heat chart that shows hot sectors for growth in 2022. Download the Deal Drivers: APAC FY 2021 report here.

Deal Drivers: APAC FY 2021

How did M&A fare in 2021 in APAC? Which sectors led the way? Where do the opportunities lie going forward?

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