Fee compression deters global managers from Australia
There is likely to be a reduction in the number of asset managers targeting growth in Australia in the future as the fee compression makes it hard for firms to enter the market.
Speaking to Money Management, Gary Horton, head of distribution for Australia and New Zealand at Federated Hermes, said any firm that wanted to break into the Australia market would have to be flexible on their fees.
Federated Hermes had a small presence in Australia but was looking to broaden this out and had a detailed growth plan for its expansion in the Asia-Pacific region.
Horton said fees in Australia were the “most competitive in the world” which could put firms off from entering the market. This had been primarily by the introduction of MySuper which meant firms had to offer a cost-effective product which met fee requirements set by the Australian Prudential Regulatory Authority (APRA).
“There is huge fee compression in Australia, more so than any other country in the world. Australia has been on this path of lowering fees for a long time and fees here are the most competitive in the world. People are also more keen to speak about fees and pricing in the first instance,” he said.
“I don’t think we will see any influx of managers coming to Australia in the next 10 years, I think it will actually reduce as more management is moved in-house and we are already seeing that in the Australian equity space. If managers are unable to be flexible in fees than Australia won’t be the market for them.”
He said the attraction for Federated Hermes was that, unlike firms which were predominantly focused on the retail space, it already had a big institutional focus so were used to offering low fees in Europe.
Rather than targeting the retail market, the firm was mostly looking for growth from super funds and the top end of the private wealth market. Strategies which it felt would be suitable for the Australian market included its global ESG offering, direct property, private equity, infrastructure and private debt.
AUTHOR
Laura Dew
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