Federated Hermes has outlined to Money Management its plan for the Australian market as the firm targets super funds.
Head of distribution for Australia and New Zealand, Gary Horton, was hired in October 2020 from Janus Henderson as the firm looked to expand its presence in Asia-Pacific following its merger with Federated Asset Management in 2018.
Horton said the firm was looking to hire three or four people in sales and would be focused on the super space and, to a lesser extent, the top end of private wealth rather than the retail space. Ideally, 80% of the firm’s Australian assets would be with super funds in the future.
The most-relevant strategies for Australian investors would be its global environmental, social and governance (ESG) offerings, direct property, private equity, infrastructure and private debt but it would be unlikely to launch a local product.
“We wouldn’t be doing local manufacturing unless it was something that we could export overseas rather than something Australian-specific. Australian equities and Australian fixed interest is a tough asset class,” he said.
While the fund was targeting super funds, Horton said the ongoing move by super funds to move their investment in-house presented the biggest challenge for the firm and it would key for asset managers and super funds to work together rather than competing.
“COVID was a challenge but going forward, the biggest challenge will be super funds embarking on a path of internalisation and moving their investment management in-house. There will already be fewer funds as a result of super fund consolidation and there will be fewer assets available to manage externally,” he said.
“The way people deal with super funds will have to change, we will have to work with their internal teams rather than as a competitor. That way of working as a hybrid model will increase and companies will have to be fluid and offer solutions to let them work together.”
Meanwhile, Horton said fees in Australia were the “most competitive in the world” which could deter firms from entering the market. This had been primarily by the introduction of MySuper which meant firms had to offer a cost-effective product which met fee requirements set by the Australian Prudential Regulatory Authority (APRA).
“There is huge fee compression in Australia, more so than any other country in the world. Australia has been on this path of lowering fees for a long time and fees here are the most competitive in the world. People are also more keen to speak about fees and pricing in the first instance,” he said.
“I don’t think we will see any influx of managers coming to Australia in the next 10 years, I think it will actually reduce as more management is moved in-house and we are already seeing that in the Australian equity space. If managers are unable to be flexible in fees than Australia won’t be the market for them.”
