Australian Superannuation Outsourcing: Fees, Related Parties and Concentrated Markets

37 Pages Posted: 20 Aug 2010

See all articles by Kevin Liu

Kevin Liu

School of Risk and Actuarial Studies, UNSW Business School | University of New South Wales, Australia

Bruce Robert Arnold

University of Technology Sydney (UTS) - Faculty of Business; UNSW Australia Business School, School of Banking and Finance; Australian Prudential Regulation Authority

Date Written: June 25, 2010

Abstract

Utilising a unique dataset collected by the Australian Prudential Regulation Authority (APRA), this paper examines the outsourcing by superannuation fund trustees eight superannuation functions, including administration, asset allocation, and investment management. In each of these individual outsourcing markets, we analyse related-party service providers, the concentration of independent service providers, and the combined impact on outsourcing costs. We find that ‘relatedness’ per se does not imply higher outsourcing fees: Related-party service providers used by not-for-profit funds generally charge no more than independent service providers, whereas retail related-party service providers tend to charge higher fees than their independent counterparts. We also find a wide diversity in competitiveness in the market for each function: Where outsourcing is concentrated among a small number of service providers - even where a large number of providers offer the service - we find that the dominant service providers charge higher fees.

Keywords: Superannuation, pension fund, outsourcing, related-party service providers, market concentration

JEL Classification: G23

Suggested Citation

Liu, Kevin Yi and Arnold, Bruce Robert, Australian Superannuation Outsourcing: Fees, Related Parties and Concentrated Markets (June 25, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1661488 or http://dx.doi.org/10.2139/ssrn.1661488

Kevin Yi Liu (Contact Author)

School of Risk and Actuarial Studies, UNSW Business School | University of New South Wales, Australia ( email )

Sydney, NSW 2052
Australia
+61 2 9385 7119 (Phone)

HOME PAGE: http://www.business.unsw.edu.au/our-people/kevinliu

Bruce Robert Arnold

University of Technology Sydney (UTS) - Faculty of Business ( email )

Australia

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Australian Prudential Regulation Authority ( email )

400 George Street
Sydney, NSW 2000
Australia

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