Global fund managers and the great Australian adventure

Thursday 10th April 2014

Penny Pyror

Our stock market may represent less than 3% of the world’s global equities, and population wise we may be way down the scale compared to countries like China and India, but when it comes to funds management we punch well above our weight.

Our superannuation industry has assets of $1.8 trillion and in terms of global pension markets, we rank fourth. What that means, and has meant for a long time, is that we are a very attractive market for international funds managers, looking to come here for a piece of that pie.

Sheridan Lee, of Shed Enterprises, started her third-party marketing firm in 1996 and points out that due to the small size of our listed equity market, Australian superannuation funds have always had more of an allocation to global equities than the UK or the US.

“The Americans have been the worst offenders. They've kind of been here for a good time not a long time." Sheridan Lee, Shed Enterprises

“It’s actually a very crowded market and it has been for a very long time,” she says.

“And it’s crowded because Australians have historically put a lot of money offshore.”

In her nearly two decades of working with international managers, Lee has seen plenty of them come and go, and come and go.

“I think the Americans have been the worst offenders. They've kind of been here for a good time not a long time,” she says.

Lee, along with others in the industry, say that what differentiates a successful approach is an obvious long-term commitment, whether that be through a third-party marketer like herself, or through setting up an office and Australian unit trusts.

“PIMCO is the perfect example of that – ie make a decision and really invest in that and take a really long term view,” she says.

Ian Manton-Hall has worked for two international managers with two different approaches, currently as the Australian director for Hermes Fund Managers, and previously as chief executive for ABN-AMRO Asset Management.

“You need to be committed to the market." Ian Manton-Hall, Hermes Fund Managers

ABN-AMRO, which Manton-Hall joined as director of marketing in 1997, established and ran its own unit trusts and back office. Hermes doesn't have local unit trusts and focuses purely on institutional funds and mandates, which go into its offshore trusts. The Hermes local presence is all about relationships.

“I think there are now a lot more one- or two-man fund managers than there used to be,” he says.

But he agrees with Lee that you need to show that you’re here for the long-term.

“You need to be committed to the market,” he said.

One fund manager, who did not want to be named, said the perception of some international fund managers, that all you had to do was come here, shake a few hands and the money would flow, is still quite prevalent, despite the obvious sophistication of our market.

“I think some of them still naively think that,” the fund manager said.

“There has always been the cynical view from this market about managers who fly in and fly out, particularly from the consultants.”

But that fund manager has also observed an increase in international operations setting up offices in Australia, which they believe is likely to increase.

According to Lee, managers with a naïve view of the Australian market will be disappointed.

“There is no low hanging fruit and I would argue there never has been,” she says.

A competitive fee structure is another reason why some international fund managers may struggle with our market and perhaps why the majority that come here are in the global equity space, rather than alternative or private equity.

“I think it’s quite a rewarding market, not withstanding the fact it's a discerning market,” Lee says.

But the number of international funds managers here, and Lee puts it at well over 100, certainly attests to our pulling power. And that is only likely to increase with the Superannuation Guarantee set to increase to 12 per cent in 2019-2020.

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