Global funds management boom

The global funds management industry experienced unusually rapid growth in 2006 with total assets managed by the largest 500 firms up 19 per cent to US$63.7 trillion, according to new research by global consultancy firm Watson Wyatt and leading United States financial newspaper Pensions and Investments.

The Pensions & Investments/Watson Wyatt World 500 ranking included 16 Australian fund managers — up one from 2005 — which collectively comprise around 1 per cent of the funds management universe.

ColonialFirstState remains the largest Australian manager, ranked 128 overall, up 10 places from last year’s survey.

Australian managers’ assets under management were up US$103 billion to US$581 billion, a growth rate of 20 per cent.

However, Watson Wyatt pointed out that this rapid growth was partly a reflection of the inclusion, for the first time, of Platinum Asset Management and the strong Australian dollar. Without these factors, Watson Wyatt said the growth for the year would be closer to 9 per cent.

Watson Wyatt Australia head of management research Roz Amos said buoyant markets globally were the biggest driver of growth in 2006, with larger firms and select boutiques (particularly those with alternative assets) reaping the biggest rewards.

“The Australian fund management industry has seen some strong growth at both a retail and institutional level over the last year, largely driven by money flowing into superannuation and strong market returns. However, this data suggests that in recent years a reasonable proportion of these assets have been flowing into smaller managers and non-Australian domiciled managers.”

According to the survey, 11 of the largest 20 fund managers are European-based, collectively managing 56 per cent of total assets. The remaining nine managers are US-based. Growth for these European-based managers was 29 per cent, compared with 16 per cent for US-based managers.

Amos said that while the weak US dollar played a role in this trend, managers that offered liability-driven investments and diversity products tended to attract assets.

According to the survey, the top 20 fund managers have remained relatively stable over the past five years, with 13 still making the cut. UBS retains the top spot with total assets of more than US$2.5 trillion. However, 200 of the 500 managers that made the grade in 2001 have since dropped out of the ranking.

Amos said the Australian fund management universe had been very stable in recent years, but individual firms should stay attuned to factors influencing the industry globally.

“The asset management industry is gradually changing shape due to a number of forces. First, globalisation is driving significant change and those firms that have global products are more likely to succeed in the future, almost regardless of their size. Secondly, those that innovate with remuneration and ownership structures to help attract and retain true investment talent will be best placed to attract institutional assets. Thirdly, investors are now demanding more value for money and better aligned remuneration structures, so those firms that show leadership in this area will be more attractive to do business with.”