Aussie distributors to benefit as overseas managers assess cost
Consultancy Oliver Wyman believes asset managers will be reluctant to expand overseas in 2025 as high distribution costs blow out any potential benefits.
In its report, 10 Asset Management Trends for 2025, the firm said asset managers in the US and Europe are reassessing their international footprints after failing to raise the volume of assets managed for overseas clients.
Among large asset managers, the average foreign-client share has dropped from 23 per cent to 21 per cent since 2018.
“Local clients favour products that feel homegrown, and hometown firms have upped their games, while international distribution costs have ballooned without producing results at many firms," it said.
Instead, the consultancy said managers will instead focus on a select few countries rather than take a broad-brush approach. In these ones, they will look to offer specific products which best suit those markets.
“These poorly performing foreign forays will not eliminate global ambitions, but they will prompt managers to shift costs from a wide range of countries into a select few where they’ll build (organically and inorganically) larger, more local-looking product sets and business models.”
In Australia specifically, a big headwind for asset managers has been the move for superannuation funds to internalise their fund management. While overseas managers might optimistically view Australia’s $4.1 trillion superannuation sector as an addressable market to target, the internalisation move has meant these funds are taking on fewer mandates or only choosing those with a niche mandate that they cannot replicate themselves.
While funds initially started out internalising just cash or passive equities, this has expanded into asset classes such as Australian equities as a way to reduce cost. They are also setting up their own offshore offices in the US and the UK rather than using an offshore fund manager who charges a percentage-based fee.
Speaking to Money Management, Andrew Lakeman, co-founder at UK-based derivatives manager Atlantic House, discussed the firm’s entry into Australia. Lakeman, who is a non-executive at the firm, resides in Australia and is responsible for the firm’s distribution strategy across Australia, New Zealand and Asia.
“Everyone is looking at how to set up in Australia, but there are lots of hoops; the regulator doesn’t make it easy. The route to market is hard unless you have thousands of dollars to burn.
“If you want to come here, then you need to have a niche, such as alternatives. You can’t just be a global equity firm and expect to get a mandate from a super fund.
“It is far better to work with a third-party distribution firm, that’s the easier option if you are a smaller player.”
This desire to use a third-party manager has been a benefit for some firms, however, as Pinnacle Investment Management and Bennelong Funds Management see this as an opportunity.
John Burke, chief executive of Bennelong Funds Management, works with global boutique asset managers to bring those funds to Australia. This includes UK-based global emerging markets manager Skerryvore, where it is a boutique partner, and UK-based fixed income manager Leadenhall Capital Partners, where it is a distribution partner.
He told Money Management: “If you are trying to get into the institutional market, you may be able to do that from overseas. But if you want to gain traction in the retail or wholesale market, then you need to have a team on the ground.”
It recently announced it will also offer a responsible entity service and took on Paragon IM in January as its first client.
Meanwhile, Pinnacle managing director Ian Macoun said the firm is “actively pursuing” international opportunities and the ability to export its Pinnacle business model overseas, and will be increasing its distribution capabilities overseas, especially in the UK.
It currently has three offshore affiliates – two in the UK and one in Canada – and also took strategic stakes in a US-based private markets firm VSS and UK-based multi-asset manager Pacific Asset Management at the end of 2024.
Last year, UK fund manager Life Cycle Investment Partners signed up as an affiliate but initially faced teething troubles getting the fund launched in Australia.
Having previously worked on a global equities fund at Royal London Asset Management (RLAM), it had hoped to retain these existing clients but delays to the launch meant some clients opted not to move over. Australian firm Ironbark held a mandate with RLAM for many years on its global equities funds, totalling $3 billion, but opted to retain this rather than move.
“We anticipated that Peter [Rutter] and his investment team would be able to manage the assets within their new structure by August 2024. While we have been working closely with Pinnacle, we have come to understand that Peter and his investment team will not be in a position to manage the funds within a time frame that Ironbark considers to be in the best interests of investors.”
AUTHOR
Laura Dew
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