The platform universe under the microscope

There are many different ways of viewing the Australian funds industry.

In broad terms, there’s the total funds market and within that, there is the retail, wholesale and regular premium sectors.

The retail sector is further broken down into platform versus non-platform monies. Therefore, the Australian platform industry is part of the overall Australian retail funds universe. Specifically, the platform sector includes monies sourced via administration platforms.

There are two ways to view the platform sector.

Firstly, from the perspective of the platform marketer — that is, the company that badges (brands) it.

Secondly, from the perspective of the platform administrator — that is, the company that actually owns the underlying platform structure. For example, there is $18.8 billion on BT/Westpac platforms, and another $14.9 billion on badged BT/Westpac platforms. Therefore the company actually administers nearly twice as much platform monies as it markets.

Methodology

The PortfolioConstruction Forum Platform Report is a joint publication between PortfolioConstruction Forum and Plan For Life. Plan for Life does all the data collection. PortfolioConstruction Forum turns the data into information by creating graphs and tables that highlight key trends and points of interest.

Why Plan for Life data? The Plan for Life platform universe is $302.1 billion in size. No other data provider has a more comprehensive and accurate database. There are other providers, but they do not have the same breadth or depth of information, so they are not as accurate.

That said, there are some limitations to the data (which Plan for Life’s competitors are subject to as well). Entities self-report and, while there are audit checks that prompt enquiry by the database team, nonetheless we’re reliant on entities to be both accurate and honest.

Australian platforms: funds under management

This graph shows the growth in funds under management of the Australian platform industry over the past five years.

Calendar 2005 saw the platform industry grow funds under management and administration by 23.1 per cent, slightly down on calendar 2004’s 25.3 per cent growth, but well up on the 2003 calendar year’s 18.3 per cent growth.

Australian platform industry: inflows and outflows

The graph shows the quarterly inflows and outflows of the Australian platform industry over the past five years.

You can see a clear growth in outflows in absolute terms. However, at the same time netflows have grown so outflows have in fact dropped to around 67 per cent of inflows during calendar 2005, from around 70 per cent in calendar 2004.

Australian platform industry: investment earnings versus netflows

This graph compares the platform industry’s investment earnings (the purple bars) with its netflows (the green bars) in the same quarter. There doesn’t appear to be a correlation.

Australian platform industry: turnover

This graph charts turnover — that is, the year’s outflows as a percentage of average funds under management over the year.

Turnover seems to have consolidated at around 19 per cent in 2005 — that is, an implied five-year investment horizon for monies invested on platforms. That’s not to say that the assets aren’t being moved around within individual investment options on platforms, or even between platforms.

Top 20 products by growth

This table shows the fastest growing 20 products over the past year.

Not unnaturally, the products featured are relatively smaller than the products featuring in the top 20 largest products (because the smaller the product, the less funds growth required to achieve a high growth rate).

The exceptions are the AMP Financial Services Signature Super ($1.8bn) and Colonial First State Firstchoice Wholesale Pension and Wholesale Personal Super ($1.2bn and $1.6bn respectively), which have grown to a very large size from a relatively modest base over 2005.

Top 20 groups by size

This table shows the top 20 groups by FUM at December 31, 2005. The group category is the highest categorisation level — it is the aggregation of companies (which in turn aggregate products, which in turn aggregate options).

The point to note is the top 20 groups by platform FUM maintained their stranglehold on the industry during 2005, accounting for 95.8 per cent of all platform FUM (down from 96.3 per cent in 2005). Even the smallest of the 20 has more than $3bn platform FUM.

Top 20 groups by growth

This table shows the top 20 groups by FUM growth in the 2005 calendar year. What’s interesting is that 11 of the 20 are also in the top 20 groups by size. It’s no mean feat to be one of the largest groups in the platform industry, and also one of the fastest growing.

This year’s stunning result is AMP — it is the second largest group by platform FUM, and grew an impressive 32 per cent in calendar 2005. This is closely followed by CBA/CFS, the third largest group by platform FUM and growing at 39 per cent during 2004.

Top 20 groups by net cashflows

This table shows the top 20 groups by net cashflows for calendar 2004.

Once again, these groups attracted more than 100 per cent of the net cashflow to the platform industry over calendar 2005, continuing the trend set in 2004.

Platform FUM versus FUA

Groups fall into three categories. First, where FUM equals funds under administration (FUA). That is, they’re not outsourcing admin, nor are they allowing others to badge their offer — for example, NAB/MLC.

The second category is where FUM is greater than FUA. That is, they are using others’ platforms in part (for example, AMP, ING/ANZ) or in whole (refer to the Badged BT Wrap, and Badged Macquarie Portfolio Manager).

The third category is where FUM is smaller than FUA. That is, they allow others to use or white label their platform (for example, BT/Westpac, CBA/CFS, St George, Macquarie, IOOF).

NAB/MLC remains the behemoth in terms of both FUM and FUA. It doesn’t outsource admin, or allow others to use its platforms.

AMP remains the second largest group by FUM, but has smaller FUA because it uses others’ platforms.

BT/Westpac has the second largest FUA (it was CBA/CFS last year). CFS has slipped to third for FUA.

BT/Westpac administers nearly twice as much as it manages — that is, it’s the largest badged offer.

AMP is much larger than BT/Westpac by FUM, but smaller by FUA, because AMP outsources some admin.

Winners and losers

This table combines FUM and growth information. All analysis is at the group level.

Firstly, we calculate the average group FUM for the industry (industry FUM divided by the number of groups). This was $6.6bn in 2005, up from $5.7bn in 2004.

Next, we calculate the average FUM growth over calendar 2004 for the industry as a whole. This was 23.1 per cent in 2005, slightly down on the 24.4 per cent growth in 2004.

Then we compare each group to these averages:

~ A super star had above average FUM at December 31, 2005 (above $6.6bn under management), and had above average FUM growth over the year (above 23.1 per cent growth).

~ A fading star had above average FUM at December 31, 2005, but below average FUM growth over the year — not necessarily negative growth.

~ A rising star had below average FUM at December 31, 2005, but above average FUM growth for the year.

~ A black hole had below average FUM at December 31, 2005, and below average FUM growth for the year — not necessarily negative growth.

In other words, it’s all relative — a group can be growing strongly but, if it’s growth isn’t keeping pace with the industry average, it will still be losing ground overall. It is growth in excess of the industry average that matters — that is ‘excess growth’.

Super stars

There are six for calendar 2005 — AMP, CBA/CFS, ING/ANZ, St George, Macquarie and Badged Macquarie (not really a group per se — it’s a conglomerate of companies that badge the Macquarie offer and market it themselves). This is up one on calendar 2004, but the composition is actually different by more than one group — in 2004, the super stars were CBA/CFS, Badged BT Wrap, Macquarie, Perpetual and St George. That is, Perpetual and Badged BT Wrap dropped out of super star status over calendar 2005.

CBA/CFS remains the strongest super star — it’s the second largest of the five, but has significant excess growth compared to the other super stars.

Fading stars

There are seven for calendar 2005. Perpetual and Badged BT Wrap fell out of super star status in 2004 to fading star in 2005. The others are NAB/MLC, BT/Westpac, AXA Au, and Aviva. While growing strongly in their own right (double digit growth in all cases), nonetheless, these groups are slowly slipping further behind their competitors in terms of platform FUM growth.

The most interesting is NAB/MLC, a fading star for the second calendar year running. That is, while still the largest player in the platform market, its competitors are slowly but surely gaining ground on it, as it is not growing at the same pace as its competitors. Put another way, it remains the race leader, but it again gave up some of its lead in 2005, as it did in 2004 and allowed other groups to close the gap.

Rising stars

There are 13 rising stars this year, down on 2004’s 16. It’s not surprising that this is a larger group than either of the super stars or fading stars. It’s relatively easier to have above average growth from a smaller FUM base. The key is whether these groups can sustain their growth to a point where they push into the super star category.

The closest is Skandia, but it remains $2.9bn away from super star status, so is a fair way off. It is worth noting that Skandia was the fastest rising star in 2004.

Challenger Financial is also an interesting contender — while slightly further off the pace in terms of FUM than Skandia ($3bn under the average FUM size compared to Skandia at $2.9bn under), Challenger Financial’s excess growth was three times that of Skandia. The odds seem strong that it will overtake Skandia in 2006.

Deirdre Keown is an analyst with PortfolioConstruction Forum.