The funds management graveyard

With ‘shipwreck’ numbers mirroring those found in the Atlantic and Pacific Oceans, the funds management industry has had its fair share of visitors to ‘Davy Jones’ locker’ over the years.

Whether these deep sea casualties stemmed from mismanagement, over-extension, unfavourable market movement or outright fraudulent activities — no-one disputes that many funds management groups that had operated in the market over the past 15 years have since departed.

According to industry stalwart and chairman of Melbourne-based accountant and planning aggregatorInvestor GroupTerry Power, Equitilink, Clayton Robard and Rothschild were the three pioneers of the funds management industry in the 1980s — a period in which he claims the industry began its real evolution.

“It was really the growth of the financial planning industry when the managed fund industry took off [in the 80s], which then received a kick along with superannuation, rollovers and approved deposit funds,” Power says.

Prior to then, Australian Flexible Trust in the 1970s had been the main player of note in what was an extended bear market from the mid-70s to the early-80s, he says.

However, none of the three early pioneers Power mentions exists as a stand-alone entity anymore.

Clayton Robard rolled into Tyndall Australia in late 1989, Equitilink, which subsequently became more of a fixed interest specialist, was bought out in late 2000 byAberdeen Asset Management.

Rothschild was acquired by Westpac Bank last year and re-brandedSagittabefore its subsequent rolling intoBT Funds Managementafter the bank later acquired the investment manager at a significantly discounted price.

According to Power, who is a former BT Funds Management director: “It was really a case of a rising tide lifting all ships up until 1987. Property trusts were also very strong, though you had front-end fees as high as 8 per cent and planners, or sales people as they were known in those days, were getting 7 per cent of that.”

AustWide, Armstrong Jones and Growth Equities Mutual (GEM) were the three main listed property players, Power says.

“GEM was successful. However, AustWide and to a lesser extent Armstrong Jones, were disasters and suffered in the property trust collapse.”

The property trust collapse in the 90s hurt a lot of investors and at one stage the Federal Government had to intervene and freeze all assets in the sector.

Estate Mortgages, an aggressive mortgage loan operator, according to Power, is another corporate collapse of note over the past 20 years.

“I think they were running television ads claiming to be safer than banks, so a lot of people put their money into mortgages. But they were lending money for development and when the market fell over they were left fully exposed.”

Some other groups to be found in the industry graveyard include OST Friendly Society — whose investorsIOOFsaved with a bailout deal — and Pyramid — a Geelong-based building society that collapsed and was tied into the collapse of the State Bank of Victoria-owned merchant bank, Tri-Continental, which ultimately fuelled the sale of the State Bank of Victoria to the Commonwealth Bank.

“There has been enormous change in the industry and that change has been precipitated by falls in equity markets and collapses in the listed property market. You then get a shakedown of players, as consolidation sees the weaker players get taken over by stronger ones,” Power says.

According to Power, the biggest single issue facing the industry at this point in time is that both the advisory industry and the managed fund industry have lost the confidence of investors.

“Both industry associations [theInvestment and Financial Services Associationand theFinancial Planning Association] have a job, as well as the players in those fields, to win back investor confidence,” he says.

On the issue of corporate collapses, however, Power believes Government regulation of the industry has largely averted the types of earlier disasters that took place in the late 80s and early 90s with regard to friendly societies and listed property managers.