The sector is marked by disappointing and structural challenges despite high compound annual growth rates in the last 10 years.
A BofA Securities research note released earlier this week spared no effort in highlighting the weaknesses of Australia's asset management sector.
It pointedly discussed the underwhelming returns and structural challenges the sector faced despite the fact that domestically-based managed funds clocked a hefty compound annual growth rate of 9 percent over the past 10 years.
This is significant given that, at about 2.5 trillion US dollars, Australia is the fifth-largest market in the world and the second-largest pension market for equities.
Weaker earnings growth
«Australian asset managers have been characterized by weak earnings per share (EPS) growth, acquisitions to bolster funds under management (FUM) scale, underwhelming flows, fee margins trending lower, falling performance fees, and higher costs limiting operational leverage,» the note said.
«We see increased structural challenges for asset manager flows and margins from regulatory focus on benchmarking, the rise in passive, increased focus on management fees, and heightened asset allocations to equities,» BofA Securities said.
Moving In-House
BofA Securities noted that Australian asset management growth has been fueled by its superannuation industry, or the country’s retirement savings program, given it represents more than three-quarters of industry value.
But the managers face headwinds as superannuation funds increasingly move services, including investment management, in-house, the note said.
Additionally, regulatory changes are highlighting a focus on fees, and may accelerate the shift to lower-fee passive management from higher-cost active managers, the note said.
