Fund managers pivoting to wholesale over retail investors

Australian investment managers are pivoting away from retail investors and towards the allure of private clients, according to research from Sentient Group.

The firm’s Australian Investment and Funds Marketing Insights report surveyed 40 investment managers and funds to gauge how firms are approaching the market in 2024.

In particular, the paper revealed a pivot away from traditional institutional sources of capital in the retail market. Instead, fund managers are increasingly eyeing out Australian wholesale investors.

According to Sentient Group, 100 per cent of those surveyed said they will be looking to raise capital from the wholesale investor market this year. Just over 20 per cent of investment managers expressed they will be looking to the broader “retail” investor market.

VIEW ALL

View all

“The survey showed some intriguing insights about where funds see value from their go-to market activity. It is well-documented the growing importance of the Australian sophisticated investor market, we are seeing many prominent houses that were formerly ‘institutional-only’ bringing offerings to market targeted at growing their private audience,” said Erin Richardson, Sentient Group founder.

“This is a trend evidenced globally where you are seeing industry titans like KKR, BlackRock, Blackstone coming out with new marketing campaigns and products designed to target these markets globally.”

The report cited several factors driving this shift towards private clients, including the $878 billion sitting in self-managed super funds (SMSFs) which continues to grow each year.

Moreover, the looming intergenerational wealth transfer is a key component as a new wave of investors look to create their own personalised investment strategy with a financial adviser.

“These tailwinds point to the importance for Australian funds to raise money from private clients and private markets, either individually directed or via a wealth or financial adviser,” the paper stated.

“Strategies need to be in place for not just the ‘raising’ of capital, but also in maintaining that strong connection to ensure that the capital stays within the fund.

Assessing the wholesale investor test

The sophisticated investor test, which defines the boundary between retail and wholesale clients, has recently received wide commentary and criticism.

The number of people eligible for the wholesale investor test has risen by more than 700 per cent since its introduction.

At the time of the implementation in 2002, only 1.9 per cent of the population met the criteria to be classified as wholesale clients. However, this has since risen to 16 per cent and the criteria is unchanged at net assets of $2.5 million and a gross income of at least $250,000 per year in the last two financial years. If unchanged, 29.1 per cent of the population could be eligible by 2031, representing 3.2 million individuals.

Commentators have identified that many Australians may have these assets, thanks to residential property incomes and superannuation growth, but lack the financial literacy to be classed as a sophisticated investor.

As such, the Financial Services Council (FSC) and Stockbrokers and Investment Advisers Association (SIAA) recommended retaining the product value test at $500,000, the gross income test at $250,000, and retaining the net assets at $2.5 million. However, it said the net asset test should exclude the family home or be increased to $5 million if it did include the property.

However, law firm Clyde & Co believes the changes will disproportionately impact younger, wealthy investors and curtail their investment opportunities.

“Financial sophistication is necessary for investors’ protection, together with all the working regulatory infrastructure – ASIC and the consumer groups are effective tools – but we do not think that simply having a large bank balance automatically equals financial sophistication.”