Funds management industry reaches maturity

There is “little room for error” left in the Australian funds management industry according to a new report which says the industry is rapidly reaching maturity

There is “little room for error” left in the Australian funds management industry according to a new report which says the industry is rapidly reaching maturity.

The report was released by Knowledgebank, a division of the New Economy Group (NEG) with director Peter Rowley saying, “There is no ‘fat’ left in the funds management industry.”

“It is in a critical situation and now for the first time ever managers must pick their core competitive strategies very carefully.”

Rowley says the report has identified a number of key findings that fund managers must become aware of if they are to effectively compete in changing market con-ditions.

The findings include: industry consolidation of both products and managers will continue; two thirds of funds growth will be from asset appreciation rather than new inflows; increased margin pressure driven by the blurring of the lines between wholesale and retail markets; growth of the superannuation sector at the expense of retail products; and the increasing importance of member investment choice in opening up the ‘mass market’.

Rowley says fund managers will also face competition from financial advisers as they increasingly invest directly into shares and fixed interest instruments for their clients.

“This is a strong competitive signal for the funds management industry and a wor-rying one,” Rowley says.

“The intermediary is capturing an increasing share of the value created through the funds management process — one that was previously the domain of the funds manager — asset selection, portfolio construction and balancing.”

However, fund managers may benefit from the huge increase in direct share own-ership in Australia.

“Direct share ownership in Australia has gone from 40 per cent to 54 per cent over 18 months, with most owning shares in one or two companies,” Rowley says.

“As Australians begin to see the volatility of the sharemarket, advisers and fund managers may be under demand as people seek to balance their risk,” Rowley says.

The Knowledgebank report warns that the changes in the industry are happening now and “only the speed and magnitude of the impact is uncertain”.

“Accordingly, achieving the effective strategic position of the funds management organisation is now critical.”