New players to shake up research sector

COMPETITION among Australia’s providers of retail funds management research is set to intensify, with two minor players renewing their push for a bigger slice of the burgeoning market.

The push is being headed by Mercer Investment Consulting, which confirmed its bid to become a major player in the retail funds management research scene with the appointment of three new recruits last week.

Mercer executive director Tony Cole says the three recruits — Chris Durack from Towers Perrin, Danny Housepeters from Property Investment Research and Tony Arnold from Mercer Financial Planning — will round out Mercer’s growing team of retail funds management analysts.

Mercer, traditionally an asset consultant for superannuation funds, flagged its interest in the retail side of funds management research earlier this year when it tried to purchase the van Eyk Research group.

However, the deal fell through in May, leaving Mercer to push into the retail research sector on its own.

Since then, the group has been hired to provide investment research to AMP Financial Planning, Australian Skandia and the Tynan McKenzie dealer group.

Cole says Mercer’s immediate focus in the retail financial services sector is to supply research on fund managers and their products directly to financial planning groups, as well as to wrap and master trust operators.

But he says Mercer is also considering a move to produce publicly available fund manager and product ratings, a move that would see Mercer compete directly with the likes of Morningstar, Assirt, InvestorWeb and Lonsdale Securities (Lonsec).

“Our current position is that we don’t publish our ratings of fund managers. But that is something that we have under review. I think we are moving in that direction,” he says.

And Mercer is not alone.

The Standard and Poors (S&P) group has made no secret of its intention to publish ratings of fund managers in the Australian market, a service it already offers in the US and Europe.

What is less well-known is S&P’s recent rating of the Colonial First State Wholesale Geared Share Fund. The rating, in line with S&P’s background as a credit rating house, related only to a capital market debt issuance made by the fund.

But in order to produce the rating, S&P had to conduct for the first time a detailed qualitative assessment of the fund and of Colonial First State itself.

S&P investment services director David Collins says the rating was a precursor to its push into the full evaluation of retail fund managers and their products.

“This is the first time we have gone through the process of doing a qualitative assessment of an equity fund,” Collins says.

“We have spoken to all the big fund managers over the last 12 months [about being rated by S&P], but we are still in the process of building our brand in the retail space so financial planners will use our research.”

The motivation for groups to move into retail funds management research, according to Cole, is a simple one.

“If you look at the APRA [Australian Prudential Regulation Authority] figures on the funds management industry, retail funds and the do-it-yourself superannuation market make up 51 per cent of the entire industry,” he says.

But the likes of Mercer and S&P will also be encouraged by what can only be described as the state of flux of many of the existing providers of retail funds management research.

Morningstar, for example, has been forced to constantly deny speculation over the last year that it would pull out of the qualitative rating of fund managers, while the van Eyk group has recently sold part of its business to a consortium of industry figures, taking it to a point where it is now almost a third externally owned.

Meanwhile, Assirt appears to be being grafted back into the Sealcorp fold, raising questions about the type of research it will provide in the future, and InvestorWeb was forced earlier this year to deny press reports that it would abandon its research business.

“It is fairly obvious from our offer to try and tie up with van Eyk that we think highly of them. The fact that we didn’t try to link up with any of the others goes to show that we either didn’t think much of them or that their ownership structure didn’t allow us to [acquire them],” Cole says.