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Funds management in ASIC spotlight

The review of competition in the Australian funds management industry is officially underway between the corporate regulator and Deloitte Access Economics.

ASIC acting chair Karen Chester said the review seeks to identify where "competition is effective, where it is not, and if not, why not".

"There is over a trillion dollars' worth of assets under management in Australia, invested across retail investment products and wholesale funds. Deloitte Access Economics is working with us on the underpinning research," Chester said.

"It is a truth universally acknowledged that competition in and of itself doesn't ensure good consumer outcomes. It is also a truth universally acknowledged that good consumer outcomes are more likely where competition is robust and effective."

Additionally, Chester labelled managed funds as "opaque" and said it was a growing area of concern for the regulator.

"Investors (retail and wholesale) are 'far from the paragon of textbook finance theory' and the growth in housing asset prices and super balances have seen many unsophisticated investors become wholesale investors," she said.

"The act of asset management (the real stewardship of capital allocation) is challenged more than ever as risk-free rates flatline. At the same time, asset managers on the hunt for yield (starved of that yield in government bond markets) are moving to where others retreat (the banks) from private debt."

Chester said investment funds have become overly complex, and that, combined with old fashioned product disclosure, has made comparing funds "difficult at best".

"ASIC is responding by requiring responsible entities to have 'true to label' marketing and labelling, and releasing comparative data to support healthy competition," Chester said.

She added that with the inevitable uptick in insolvencies and extreme macro forces being experienced, investment managers will face greater liquidity challenges.

"As underlying assets come under stress so will the managed funds that invest in them. Some investors will likely be surprised to find they are unable to withdraw from previously liquid managed funds," she said.

"So we are working with Treasury to ensure we have (and can publicly share) much greater data on retail management investment products, wholesale funds and non-bank lending."

Read more: ASICDeloitte Access EconomicsFunds managementKaren Chester
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