Managers admit profit slump

Australia’s funds management community is in the midst of a dramatic slump in profits and revenue, the latest annualInvestment and Financial Services Association(IFSA) Key Industry Statistics Survey has found.

The results of the survey, to be released today at IFSA’s annual conference in Brisbane, shows that approximately one in four fund managers, of all sizes, reported a fall in profits and revenues in the year to May this year.

The slump was blamed largely on the continuing instability of the world’s investment markets, with managers involved in the survey voting investment market performance the most critical factor by far in driving their profit growth.

However, the majority of fund managers remain optimistic about their future prospects, with 70 per cent expecting revenue growth of more than 10 per cent and 54 per cent expecting profit growth of above 10 per cent in the next 12 months.

The fall in profits and revenues was accompanied by a corresponding drop in the growth of assets under management in the Australian funds management market.

According to the survey report, the assets managed by survey respondents grew by only four per cent over the last year to $460 billion, substantially slower than the 8.5 per cent growth reported by respondents to the survey in the previous year.

Medium sized managers, with between $5 and $20 billion under management, where the fastest growing fund managers over the last year, increasing their asset base by 9.1 per cent on average, according to the report.

Small managers, with less than $5 billion under management, grew by 8.8 per cent, while large managers, with more than $20 billion under management, grew by only 2.7 per cent.

Despite the tougher economic conditions over the last year, Australia’s fund managers continued with their unerring commitment to new product launches.

Over the last year, the number of retail funds management products offered by respondents to the survey increased from 1471 to 1678.

And the trend seems set to continue, with 49 per cent of respondents indicating they expect the number of products in the industry to grow by between 0 and 5 per cent over the next year, and a further 29 per cent saying they expected the number of products to jump by as much as 10 per cent. Fewer than 10 per cent of respondents expected the number of products to fall over the next year.

The hedge fund sector is expected to be the main beneficiary of this new product rollout, with around 35 per cent of respondents indicating they planned to launch either a hedge fund or fund-of-hedge-funds product over the next year.

According to the report, 20 per cent of respondents released a hedge fund over the last year, while almost 30 per cent launched a fund-of-hedge fund product.

However, the new products are not expected to play a big part in lifting the local funds management industry out of its profit slump, with revenue generated from new products considered the least important source of all important income for managers over the next 12 months.

According to the survey, up to 80 per cent of fund managers see revenue generated from their existing customers, as well as an upturn in the performance of investment markets, as the key to revenue growth over the next year.