Competition will intensify among the country's largest fund managers as research forecast the size of the wealth management market to reach $8 trillion by 2035, at a bare minimum.
In the latest Rainmaker Roundup report on funds under management (FUM) market projections, Australian-sourced FUM, which currently sits at around $2.4 trillion, is projected to increase 8% p.a. over the next 20 years. This is driven primarily by compulsory superannuation savings, which accounts for 78% of the projected $8 trillion honeypot.
By contrast, the financial centres of Hong Kong and Singapore, with approximately $2.8 trillion and $2.2 trillion FUM respectively, only source a lower 29% and 19% of their funds domestically.
"Australia, as a financial destination, has been able to match Hong Kong and Singapore. This shows just how successful the investment industry has become despite its globally uncompetitive tax structure," noted the report. For example, exports of financial services only account for a small 3.5 per cent of the total funds management industry.
"To grow our financial services export market, Australia's withholding tax system needs to be simplified and lowered significantly so we can effectively compete for financial services trade opportunities in the Asian region," said Sally Loane, chief executive officer at the Financial Services Council (FSC).
"We urge the Government to address this in the Budget," she said.
A more favourable tax structure aside, the battle will be between the comprehensive managers (big brands), the boutiques (small brands) and the specialists (niche brands).
According to Rainmaker, the boutiques and specialists are fast catching up to the comprehensives but are still way behind by sheer numbers. The top five fund managers based on Australian-sourced FUM as at September 2015 were State Street Global Advisors Australia, the Future Fund, AMP Capital Investors, MLC Investment Management and Colonial First State Global Asset Management.
Rounding up the top 10 list were Macquarie Banking Group, Vanguard Investments Australia, QIC Limited, BlackRock Investment Management and Challenger, in that order.
How this league table will change in 20 years' time will hinge on whether the government will change relevant tax policies to make homegrown fund managers more globally competitive compared to other financial centres, including HK and Singapore.
Technology has also enabled the smaller players to get a bigger slice of the market, with product providers chasing investors who want low-fee funds or institutional-grade portfolio solutions at commodity prices.
But the lion's share will go towards the fund managers who can successfully walk that tightrope of offering a compelling mix of indexed and benchmark-unaware strategies. The Rainmaker research only assumes compulsory super at around the nine percent mark: the aggregate pool of assets will be much larger than $8 trillion if the government pushes through with the 12% to 15% Superannuation Guarantee (SG) figure proposed in recent years.
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AMP Capital Investors
, BlackRock Investment Management
, Colonial First State Global Asset Management
, Future Fund
, Macquarie Banking Group
, MLC Investment Management
, QIC Limited
, Rainmaker Roundup
, State Street Global Advisors Australia
, Vanguard Investments Australia