Fund manager outlook remains bullish

Australian fund managers are confident this financial year will prove more fruitful than 2002/03 despite the failure of estimates made this time last year to materialise.

More than half of managers surveyed in theInvestment and Financial Services Association’s (IFSA) fifth annual Key Industry Statistics Survey expect profit growth in excess of 10 per cent for the 2003/04 financial year, while none anticipate negative revenue growth.

IFSA chief executive officer Richard Gilbert says fund managers are more confident this year because of market growth, but with nearly 25 per cent of them reporting a fall in profits and revenues, last year’s expectations were definitely over-optimistic.

“Simply, the expectation was that funds would continue to grow, and they didn’t. But who could have predicted the world events of last year and a third year of adverse markets?”

The survey says manager expectations this year are consistent with the increased growth in funds under management (FUM) and actual growth in FUM in the second quarter of 2003.

In a repeat of last year’s survey results, respondents expect existing customers to drive revenue growth, while increased importance was placed on investment market performance.

Investment market performance is still viewed as the most important driver of profit growth, while the importance of being responsive to customer needs and demands is up on prior years and is expected to increase again this year.

The fund managers surveyed also view the importance of winning customers from competitors to increase in the next year, and as the third most important factor driving revenue growth.

The fourth, fifth and sixth respectively, were new customers to the industry, the introduction of new products and the introduction of new distribution channels.

In terms of profit growth, the managers surveyed view the cost of regulation and compliance as of moderate importance, but also expect an increase in importance over the coming year.

After IT costs, compliance is viewed as the second highest cost by function and had the second largest expected growth. In order to comply with regulatory and legislative changes, 64 per cent of respondents spent up to $1 million dollars on system and resource costs last year.

Meanwhile 65 per cent of respondents say they have spent up to $500,000 on educating investors and advisers over the past 12 months.

IFSA says the survey indicates financial planners and the industry as a whole have been successful in educating investors to ride the economic cycle and stick to long term asset allocations.

More than half of the fund managers surveyed say less than 5 per cent of their retail clients switched to lower risk portfolios in the last 12 months.

Overall, between 2002 and 2003, assets under management fell 1 per cent - at odds with the modest growth expectations seen in the 2002 survey.

IFSA says the 32 survey respondents manage around $430 billion in assets, and represent almost 70 per cent of funds under management. The survey was conducted in May this year.