Australian active managers need to adapt to changing consumer demands which are driven primarily by greater shift to global equities and fee pressures due to the rise of passive investing, according to Zenith Investment Partners.
The firm’s report on long/short Australian shares found that managers who observed these trends early on and took action would be better placed than their counterparts who continued on with no major adjustments to changing market conditions.
Those managers who managed to implement the changes they chose to either diversify their product offerings and/or reduced management fees. According to Zenith, on average, the management costs of rated core funds decreased by 15% over the past five years.
Conversely, those managers who resisted changes saw declining assets bases, with some closing operations. As a percentage of Zenith’s rated Australian Shares universe, core managers went from being 40% to 31% over the last five years, representing a 21% decrease, the firm said.
According to Quan Nguyen, head of equities at Zenith, there was a growing number of long-only managers who offered accompanying long/short options.
“Investors and their advisers want more differentiated choice and we’ve seen some managers deliver a more creative response to remain relevant. Specifically, we have observed a clear trend of long-only core managers moving into the long/short space over the last five years,” he said.
“While it is true that long/short funds typically have higher fees relative to their long-only counterparts, they have also produced superior after-fee returns over the past five years, on average”