Aging population to drive funds growth

Australian investors will sink more than $2.8 trillion into managed funds by 2012, according to Commonwealth Bank currency strategist Michael Workman.

Workman says Australia's ageing population could lead to a quadrupling of the amount of money invested in domestic and overseas managed funds to $2.8 trillion by the year 2012 from its current level of $622 billion. At December last year, the majority of this figure, $520 billion, was invested in life and superannuation assets with the balance in unit trusts.

Workman says the growth will be spurred by the aging Australian population demand for higher returning investments, many which are available through offshore equities and bonds.

This would then increase the selling of the Australian dollar and funds will increasingly be large net sellers of Australian dollars over the next 12 years, and offshore funds could reach 33 per cent of total investment funds.

"If the past 12 years' growth rate (12.8 per cent compound) is applied to current managed funds it means they will reach a staggering $2.8 trillion in 2012," Workman says.

"If we assume that the proportion invested offshore climbs to 33 per cent (from 19 per cent now) which places $900 billion overseas, mainly in US, European, or Japanese equities. Such a level of offshore flows implies increasing Australian dollar selling in the next 12 years."

Workman says the rising outflows implied by this analysis will shift the markets' focus away from merchandise trade issues as the important long-term influence on the Australian dollars' level and direction.