Boutique fund managers feel the squeeze
Boutique fund managers Bennelong Funds Management has shone a light on the competitive pressures facing managers in the current environment, saying that boutiques are shutting down as margin squeeze drives them to the wall.
Speaking at a Deloitte/Minter Ellison breakfast in Melbourne, chief executive of Bennelong Jarrod Brown said that controlled distribution, a concentration of power among industry and retail funds, and the growth of self-managed super was hitting fund managers' business models.
Brown quoted Credit Suisse estimates that the average funds management cost for a retail investor would drop from a total 184 basis points (BP) to 100 BP.
At the same time, Brown estimated that there are more than 300 domestic fund managers in Australia, and another 450 plus globally owned managers that are active in the Australian market place.
There were 72 fund managers active in Australian equities alone, and they can't all survive, he said.
The pot of gold is getting bigger, but there are many factors placing pressure on the bottom 30 fund managers, Brown said.
"There is a fair amount of competition at the moment," he said.
Brown questioned what would happen to managers with long track records if super funds continued to shift funds management in-house.
He suggested that the market has recognised that there are fundamental issues for fund management models. Fund management valuations are almost back at neutral with the market, whereas they used to trade at a 20 per cent premium to market, he said.
Talent retention was critical to remaining viable, and the institutions were still struggling with that issue, Brown said.
The highest quality talent in this country is in the top 1 per cent, he said.
Fund managers must retain talent if they want to survive in this competitive environment for funds, Brown said.
The value drivers for fund managers haven't changed since the financial crisis, he added.
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