Aussie funds pool to hit $1.32 trillion

Australia’s mutual fund industry is set for a bonanza over the next decade, with assets under management forecast to reach a total of US$1.32 trillion by 2015.

Latest figures from the Reserve Bank of Australia show the country has leapfrogged Italy to become the world’s fourth-largest mutual fund asset pool, with US$433.6 billion under management. The research has been compiled by the Investment Company Institute on behalf of the International Investment Funds Association.

The business opportunity provided by this rapid growth has been spotted by foreign investment houses. T Rowe Price is moving into Australia through a joint venture with the Challenger Financial Services Group, and Allianz Dresdner Asset Management has also announced expansion plans to build its presence in Australia. Foreign fund managers increasingly see Australia as the hub of their Asia-Pacific operations, as Credit Suisse Asset Management showed when it made Sydney its Asian hub two years ago.

More to come Further joint ventures with overseas firms are expected. “I expect these relationships to be a feature of the landscape,” says Richard Gilbert, CEO of the Investment and Financial Services Association.

Industry players in Australia attribute the growth in mutual fund assets to the stability of the country’s equity market, the strength of the Australian dollar and the compulsory retirement savings system.

In Australia, employers must contribute 9% of each employee’s earnings to the national superannuation scheme. David Kent, general manager at Axiss Australia, the government’s investment promotion agency, says: “This dictates natural growth in the industry.”

IFSA’s Gilbert adds: “How many countries can say they’ve got a retirement system where 93% of their workers are covered?”

Australia’s mutual fund industry grew by 19.3% from the end of June 2002 to reach US$433.6 billion in assets under management by the middle of 2003. This compares with 10.9% growth for the previous year.

Over the past two years Australia has risen from seventh to fourth in total mutual fund assets under management. Cerulli Associates estimated it would reach US$582 billion by the end of 2003 and US$912 billion by the end of 2007.

In addition to the compulsory employer contributions, workers can also pay into their schemes. “I believe that voluntary contributions will build on the compulsory system so that total contributions will reach, for example, 11% or 12%,” says Gilbert.