Funds management pool to triple by 2015

Australia’s pool of funds management assets will almost triple in 10 years, enticing more global players to move in and compete with domestic groups, the country’s international financial services ambassador believes.

Axiss Australia, a Federal Government agency whose charter is to promote Australia as a global centre for financial services, released its annual benchmark report last week, predicting that the local funds management industry would grow to about $2,300 billion by 2015.

Underpinned by compulsory superannuation guarantee savings, Australia’s pot of funds management assets currently stands at roughly $835 billion — the fourth largest in the world behind only the US, Luxembourg and France, and the largest in Asia, ahead of Japan, Hong Kong and Singapore.

While acknowledging that the entry of international fund managers into Australia had slowed from the rush of a few years ago, Axiss executive manager Gary Johnston said foreign players would continue to be enticed by the promise of growth offered by the compulsory superannuation regime.

“Unlike other regional competitors like Hong Kong and Singapore, we have an organic and strongly growing funds management sector based on the mandated superannuation guarantee levy,” he said.

However, global players were increasingly cautious about how they committed to new markets.

“The pace [of groups moving into the Australian market] has steadied here, but the enquires that we have received has given us quiet confidence that we will continue to see new entrants to this market,” Johnston said.

“Increasingly, fund managers looking to enter this market are doing so, initially, through agency arrangement or joint ventures.

“We have a market that is dominated by institutional players and we also have very strong platforms for the distribution of products in Australia. So there are relatively low risk, low cost entry strategies.

“Our experience has been that…what starts as an agency arrangement or a sizeable but single mandate can lead to a dedicated sales presence and then as these foreign fund managers get to know the Australian market better…they look to commit resources in Australia to provide other [services].”

As well as the growing tide of superannuation savings, international fund managers were also reacting to Australian investors’ relative sophistication when it comes to structured products, particularly in the infrastructure sector, Johnston said.

“Most of the major investment banks are either physically here or well represented here,” he said.

“We are starting to see more interest in starting to expand their front-office operations, including in the areas of wealth management and private banking.

“There is also increased interest in structured finance products, including infrastructure financing.”

Johnston said global players were becoming acutely aware of the importance of gaining recognition with financial planners if they were to compete with domestic funds management groups.

“They [international groups] come to a quick realisation of the importance of the financial planner networks and the depths of those networks, and again the skill base and sophistication of the financial planning industry in Australia,” he said.

“I suspect it comes as something of a bit of a surprise to them.”