Compulsory superannuation contributions only became law in Australia in 1992, but today the super industry is estimated to be worth roughly $3 trillion.
I think it is a good thing that we as a nation now have a massive pool of national savings that will (hopefully) fund our retirements.
But this enormous pile of capital has also started to draw attention – Australia now has the fourth-largest pension scheme in the world and it seems more and more companies want to cut a slice.
According to a report in the Australian Financial Review (AFR), the latest (and potentially largest) possible entrant into the super space is US investing titan Vanguard. If it does occur, Vanguard's entry into the super sector could change the landscape significantly.
Who is Vanguard?
Vanguard is a private company founded by the late John Bogle back in 1975, specialising in funds management. Notably, Vanguard and Bogle pioneered the index fund – a passive method of investing that typically tracks a basket of the largest companies on a market.
Today, Vanguard is the largest provider of mutual/managed funds in the world, and the second-largest provider of exchange traded funds (ETFs). According to the company, its funds under management are estimated to be around US$5.3 trillion. You might know some of their popular ASX funds like the Vanguard Australian Shares Index ETF (ASX: VAS) or the Vanguard Australian Government Bond Index ETF (ASX: VGB).
What makes Vanguard so special is that (unlike most of their competitors), they are actually a mutual society of sorts – Vanguard runs on a not-for-profit basis, and earnings are typically reinvested back into lower fees for Vanguard's customers. Thus, Vanguard has been able to maintain their reputation as a low-cost, high-quality provider.
What does this mean for super?
According to the AFR report, Vanguard is "drawing up plans" to enter the superannuation side of asset management in Australia.
The report quotes Vanguard Australia's Robin Bowerman as saying:
It is an important strategic direction we are taking but it's about repositioning Vanguard to be closer to the end investor…(it's a) good way to compete in the fourth largest pension market in the world, but also one in which the investor base is very sophisticated.
If Vanguard brings its ultra-low ETFs and managed funds into the superannuation market, it will likely result in some pricing competition between industry funds in particular, which have benefitted enormously from the positive coverage of their returns in the recent financial-sector Royal Commission.
In the meantime, we will have to wait for some more details from Vanguard, but this will be an interesting space to watch!
