Australian mutual fund market tough to crack

Added 12th April 2016

Foreign fund managers seeking distribution in Australia face unique challenges, according to research firm Cerulli.

Australian mutual fund market tough to crack

The cost of doing business is a major issue in Australia, according to the research firm.

"Costs come from salaries that are high relative to those that are paid in other countries in the Asian region, high personal and corporate taxes, and an industrial relations regime that makes it difficult to adjust staffing in response to changing commercial conditions," said Thusitha de Silva, director at the firm.

Australia is part of the planned Asia Region Funds Passport (ARFP) scheme, which ideally could be an entry strategy vehicle for foreign asset managers. But the research firm had doubts the scheme would take off in Australia, at least in the short-to-medium term.

Potential challenges include sharp differences in the country's tax law versus the rest of the region. Other differences exist between Australia-domiciled mutual funds and UCITS and other funds that are widely distributed elsewhere in the region.

In addition, Australian investors typically do not share the "short-term and aggressive approach to investment of Asian retail investors".

The need for foreign asset managers to get “the right product” could also be a barrier to entry.

For example, the right product should be the best-in-class, or have some clear differentiation from other offerings. It should also be significantly supported by clients in other countries, be highly rated by consultants, and relevant to an asset class to which Australian superannuation funds (pension funds) actually allocate money.

Another key characteristic of the right product is that it should be "attractive to gatekeepers at the organisations to which 70-80% of financial advisors are in some way linked".

Those organisations include the country’s four major banks, namely Commonwealth Bank, National Australia Bank, Westpac and ANZ Banking Group.

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