Veteran stockpicker David Paradice forecasts a significant wave of closures among Australian money managers. He attributes this to prolonged underperformance driving clients towards cheaper index funds, exacerbating a fee crunch that impacts profitability. Mr. Paradice, founder of Paradice Investment Management, stated that government-imposed ‘Your Future, Your Super’ tests have compelled active managers to reduce risk, fearing they might lag the broader market. Paradice Investment Management, established in 1999, manages client money by investing in diversified portfolios of companies.
These APRA-administered reforms, effective from 2021, demand annual performance accountability, forcing active fund managers to slash fees or lose mandates. Mr. Paradice noted reforms distorted equity markets, with large super funds acquiring big stocks irrespective of valuation, challenging active managers. Morningstar data shows only a quarter of active Australian large-cap equity managers outperformed the S&P/ASX 200 Index last financial year, the weakest in seven years. This led to $6.6 billion withdrawn from local equity funds, while index funds attracted $15.5 billion. Consequently, several institutional funds, including Cooper Investors and Platypus Asset Management, have already shut down or lost mandates.
Despite this challenging environment, Paradice Investment Management has bucked the trend, with all five of its Australian equity funds beating their benchmark since inception. The firm attributes this success to encouraging portfolio managers to take calculated risks, notably investing in beaten-down tech stocks like Xero and Seek, and avoiding overvalued bank stocks. An early investment in Firmus Technologies also benefited the firm. This consistent outperformance, coupled with retaining high-performing staff, has attracted significant interest from offshore investors. They are drawn to Australia’s sharemarket’s resources weighting, seeing it as a conservative avenue for energy transition and AI boom engagement.
