It's a Small World after All: Using Social Network Analysis to Investigate Systemic Risk in the Australian Superannuation Sector

Centre for Law, Markets and Regulation (CLMR) Research Paper Working Paper No. 1541

21 Pages Posted: 24 Jun 2015

See all articles by Rob Nicholls

Rob Nicholls

UNSW Business School; UNSW Law Centre for Law, Markets and Regulation

M. Scott Donald

UNSW Law

Kevin Liu

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

Date Written: June 24, 2015

Abstract

Australia’s superannuation (pension) sector is extraordinarily large by almost any measure. The system is the fourth largest in the world with assets under management exceeding $A2 trillion (€1.3 trillion). Approximately two thirds of the system ($A1.2 trillion) is managed in the large-scale intermediated superannuation funds that are the subject of this study. At one level, these funds appear to be functionally and financially independent of each other. However, they are linked by the common use of service providers. Indeed, the regulatory approach, for those entities that are actually regulated is to treat each of the service providers in separate silos.

This paper examines the effects of the service provider linkages using a network science approach. It demonstrates that social network analysis and network science theory can be used to describe the level of interconnectedness within the Australian superannuation sector. It shows that the system has some ‘small world’ characteristics and analyses the consequences of these characteristics. In particular, it concludes that a more holistic regulatory approach is required in order to be able to identify systemic risk, which is not apparent from the current silo-based analysis.

Keywords: systemic risk, social network analysis, superannuation, risk, pensions, contagion

JEL Classification: C63, D81, D89, G28

Suggested Citation

Nicholls, Rob and Donald, M. Scott and Liu, Kevin Yi, It's a Small World after All: Using Social Network Analysis to Investigate Systemic Risk in the Australian Superannuation Sector (June 24, 2015). Centre for Law, Markets and Regulation (CLMR) Research Paper Working Paper No. 1541 . Available at SSRN: https://ssrn.com/abstract=2622304 or http://dx.doi.org/10.2139/ssrn.2622304

Rob Nicholls (Contact Author)

UNSW Business School ( email )

Sydney, NSW 2052
Australia
+61412646477 (Phone)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/rob-nicholls

UNSW Law Centre for Law, Markets and Regulation ( email )

Kensington, New South Wales 2052
Australia
+61 4 1264 6477 (Phone)

HOME PAGE: http://https://www.business.unsw.edu.au/our-people/rob-nicholls

M. Scott Donald

UNSW Law ( email )

Kensington, New South Wales 2052
Australia

Kevin Yi Liu

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

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