A repeal of the foreign investment fund (FIF) rules will make Australia's taxation regime less onerous for overseas investment managers, but the proposed successor of FIF, the foreign accumulation fund (FAF) rules, will not cause the floodgates to open.
Foreign asset managers still faced a number of obstacles that needed to be considered before taking the plunge, according to The Freshwater Partnership principal Peter Dawson.
"Offshore investment managers that have bridged their businesses into Australia have had a potted history of success, particularly in the 1990s where there were numerous noteworthy casualties," Dawson said.
"[But] for those that have been exacting in their due diligence and have adopted a long-term time frame in building a local presence, there has been a considerable payback that is evidenced with the success of a number of US and UK firms building strong franchises in Australia."
The number of foreign managers that have been eyeing the Australian market has accelerated since the global financial crisis, as they are looking for diversification of revenues and see opportunities in the mandated growth of the superannuation guarantee.
Managers of alternatives products especially have been scoping the local market in the past 12 months, with recent entrants including Angelo, Gordon & Co and Evolved Alpha, while Ares Management is also rumoured to have considered establishing a presence here.
But many managers in the past had struggled with the Australian approach to fees, Dawson said.
"A lot of managers are not used to negotiating on fees and often they can get higher fees in their home markets than here," he said.
Capacity is another factor in determining whether a local office is needed. "If you only have $1 billion capacity, you can fund it out of your own [head] office."
Finally, fund managers need to make sure they commit the time and resources to an Australian office to allow for the long process of building a profile in the Australian industry.
"[Asset consultants] tell them to be patient and that if they will come here regularly and are consistent in their approach that they will pick up business," Dawson said.
