TONY BOYD If you want a great example of Australia’s lack of entrepreneurship, deep-seated conservatism and pathetic parochialism, you only need look at the wealth management industry. It is staggering that a country with the fourth-largest savings pool in the world has failed to carve out a strong niche in the management of global wealth.
The telling statistic that brings home the huge missed opportunity in wealth management is that Australian fund managers only manage about $75 billion on behalf of foreign investors. That amounts to less than 0.03 per cent of the $225 trillion in global financial assets and less than 5 per cent of the $1.6 trillion in funds under management in Australian superannuation funds.
It is disappointing that a services industry that has an obvious comparative advantage and a 22-year track record of active funds management in equities has failed to grasp the opportunity to earn export income.
The most blatant missed opportunity is in equities funds management. This sector could easily have applied the same skills in selecting domestic shares to the selection of foreign shares.
But when you look at the big wealth management companies owned by the major banks and AMP, there is a limited amount of money managed on behalf of foreign investors apart from relatively small amounts in offshore subsidiaries.
There are more than 100 equity fund managers in the monthly table published by consulting firm Mercer but most of them do not offer an international funds management product.
Several fund managers have in recent times expanded their mandates to include international shares but they have been slow to come to the party.
When Deloitte Access Economics this week released a list of the strongest growth areas for Australia over the next 20 years, wealth management was in the top five. Deloitte focused on the need to change Australia’s tax and regulatory regime in order to attract foreign fund managers to Australia and make it a wealth management hub. It highlighted the valuable work done by Mark Johnson in a report published in 2009 which identified measures to make Australia better able to compete with regional funds management centres in Singapore and Hong Kong.
But it missed the point about the lack of barriers to local fund managers shedding their complacency and offering global wealth management products.
THE WAY IT SHOULD BE DONE Probably the most successful global funds manager in Australian history is Kerr Neilson, the founder and chief executive of Platinum Asset Management, which has $23.68 billion in funds under management. Neilson, however, is not a shining light in terms of earning export dollars for Australia from wealth management. His extremely profitable business model involves managing money on behalf of domestic investors, who pay quite high fees for the privilege of tapping into his proven stock selection skills.
The standout example of the mammoth opportunity in global funds management is Magellan Financial Group, a company founded by Hamish Douglass and Chris Mackay. From a standing start seven years ago, Magellan has lifted its funds under management to $22.79 billion.
Douglass and Mackay showed that a team of funds management professionals based in Sydney could take on the world and successfully develop and market a strategy that delivers high returns to investors. Only $6 billion of the $22.79 billion in funds under management at Magellan has come from Australian investors. That shows the company has won the confidence of big pensions funds, sovereign wealth funds, family offices and university endowments.
While the bulk of Australian fund managers were happy to fight over the $800 billion in super assets invested in local equities, Magellan was out there building a global business. It did not need tax breaks and it did not opt for the easy option of incorporating its business in a country with low taxes and extensive global custody and funds administration services such as Singapore or Ireland.
This excellent example of entrepreneurship should be a beacon for other fund managers.
As the Financial Services Council will tell David Murray’s financial system inquiry, the amount of domestic investment in foreign equities will soar over the next 20 years.
But fund managers should not sit around waiting for locals to shift their super savings. They ought to use their proven skills in funds management and sell them to the world.
ACCC FIRES WARNING SHOT The $11 million fine against Flight Centre for attempting to enter anti-competitive arrangements with three international airlines is a loud warning for boards of directors and management of large companies.
The message is that the courts will back up the Australian Competition and Consumer Commission and it will impose big fines.
ACCC chairman Rod Sims now has about five notches in his belt against the big end of town.
The author’s super fund has funds invested in the Platinum International Brands Fund and the Magellan Global Fund.
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