Speaking at a recent State Street Australian Asset Managers roundtable in Sydney, IOOF managing director Christopher Kelaher said that despite Australia’s relatively small size, its asset management market is quite advanced.
“We’re right through this pricing cycle. We’re actually seeing prices being driven through the floor,” he said.
“There are examples of people managing money for next to nothing at the moment to hold onto assets under management and maintain track record,” said Mr Kelaher.
Russell Investments Asia Pacific chairman Alan Schoenheimer pointed out there are currently about 160 Australian equity managers – far more than “makes sense” in a market of Australia’s size.
“We’re going to get fee pressure because there’s just massive competition – there’s way too much supply,” he said.
“We are seeing very tight margins, but I’m not sure how that cycle reverses itself without some sort of explosion.”
Aberdeen Asset Management managing director Brett Jollie said declining margins will inevitably lead to fund manager consolidation.
According to Mr Schoenheimer, Australia is “the land of the oligopoly … and the government likes it that way because they get what it thinks are competitive institutions”.
He said the number of institutions is shrinking, and the largest firms are “inexorably moving to internal management”.
“If things continue on the same path, we will end up with literally a handful of big industry funds and a whole bunch of self-managed funds,” he said.
“Even today, five or six players have got 80 or 90 per cent of the market distribution, so it’s already an oligopoly,” said Mr Schoenheimer.
But each time an oligopolistic institution attempts to operate outside Australia it fails “because they don’t know what competition really is”, he said.
According to Mr Jollie, the intermediated nature of the Australian retail market sets it apart from the rest of the world, with the process of having a fund rated and approved for retail distribution taking “years”.
“It’s not a simple process to gain traction in this market and it usually takes time,” he said.
Mr Kelaher described the retail dollar as “the holy grail” for Australian asset managers.
“Institutional [mandates are] wonderful but it’s volatile; your business can build up, but the money is very hot money,” he said.
If an asset manager running a large portfolio for an industry has one bad year “they’ll pull the money back as they think it’s better to manage it in-house”, said Mr Kelaher.
As a result, the magnitude of the swings involved with institutional mandates is in the hundreds of thousands of dollars, whereas on the retail side there are thousands of people with $15,000 or $20,000 each, he said.
“That’s the holy grail; get that money and it tends to stick,” said Mr Kelaher.
