Funds Management


Australia has one of the largest and fastest growing funds management sectors in the world. As of 31 March 2012 the Australian managed funds industry had $1,869.5 billion funds under management. Its growth is strengthened by Australia’s government-mandated retirement scheme, superannuation, which was introduced in 1992 and is set to increase gradually from 9 per cent to 12 per cent of salary by 2019-2020.

Wide variety of providers

There are over 130 investment management firms operating in Australia, as well as approximately 200 smaller hedge and boutique fund managers. The top 30 investment management firms control over than 85 per cent of the industry’s funds under management.

The three largest investment management firms in Australia, by way of Australian sourced funds under management as at September 2011 are Colonial First State Global Asset Management, State Street Global Advisors Australia, AMP Capital Investors Limited. Colonial First State Global Asset Management has $91 billion of Australian-sourced funds under management and holds 6.7 per cent of market share. State Street Global Advisors Australia has $79 billion and holds 5.8 per cent of market share and AMP Capital Investors Limited has $76 billion with 5.5 per cent of the market. Other investment management firms that make up the top ten by way of market share are MLC Investment Management, QIC Limited, Macquarie Banking Group, Vanguard Investments Australia Limited, OnePath Australia Limited, Blackrock Investment Management (Australia) Limited, Victorian Funds Management Corporation.

Of the total industry assets under management, two-thirds are sourced from wholesale investors, such as pension funds and insurance firms, and one-third from the retail investor market. The retail investment management market is dominated by large domestic institutions with 23 out of the 30 largest retail fund managers of local origin. Total unconsolidated assets of these domestic companies were almost A$390 billion, accounting for around 90 per cent of the retail market. Boutiques and Hedge Funds also make up part of Australia’s investment management industry.


Boutiques are typically investment firms established by an individual or small group of experienced managers who focus on a particular investment strategy or niche, often charging performance fees. There are over 200 boutique investment management firms in Australia, with at least 100 fund products offered in the Australian equity market alone. The largest boutiques include Perennial Investment Management, Platinum Asset Management, and Maple Brown Abbot, and are increasingly regarded as large institutional investment management firms.

Hedge funds

Hedge fund managers are either established by boutiques or by financial institutions. Hedge fund assets under management reached US$29 billion in December 2009, with Australia and Hong Kong the leading hedge fund markets in the region, excluding Japan. More than 80 per cent of Australia’s hedge fund assets are deployed in markets outside the country. As at December 2010 the following Australian fund managers were ranked within the world's top 500 largest money managers according to total assets under management in U.S. millions; Macquarie Bank Group, Commonwealth Bank Group, AMP, NAB/MLC, QIC, Westpac/BT, Industry Funds Management, Perpetual, Challenger Financial, Perennial Investment, Platinum Asset Management, Maple-Brown Abbott, Insurance Australia Group, Charter Hall Group, Balanced Equity Mgmt. Lend Lease, Northcape Capital, JCP Investment Partners, Paradice Investment.

Sources of information:
1.ABS cat. No. 5655.0, Managed Funds, Australia, March 2012: MARCH KEY POINTS
2.Australian Trade Commision: Investment Management Industry in Australia, 2010. Pg 10. 

3.Rainmaker: Australian-sourced FUM of Australian entities, as at September 2011

4.Australian Trade Commision: Investment Management Industry in Australia, 2010. Pg 11 

5.Australian Trade Commision: Investment Management Industry in Australia, 2010. Pg 12

6.The P&I/Towers Watson World 500, World's largest money managers, 2010.

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Small to Mid Cap stocks bounce

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Adding cyclical positions to portfolio

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Fairview: shale plays and private equity

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Bill Evans bets on global stimulus in 2012

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Remaining overweight banks and resource stocks

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Small caps forecast to grow earnings in 2012

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Fund manager update

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Growth Fund

The Growth style of investment management focuses on companies whose forecast sales and earnings growth are likely to be better than those projected for the market, with strong balance sheets and a manageable levels of debt. In implementing a Growth strategy fund managers focus on companies with a proven track record, assuming the company will continue its success. However the market also recognises the superior quality of these stocks and Growth investors often pay a premium.

Value Fund

The Value style of fund management focuses less on earnings and more on company price, buying stocks believed to be undervalued. Statistical measures and qualified judgement are employed by Value fund managers to identify bargain stocks, with the view that a company’s true value will eventually be recognised resulting in share price growth. The Value approach means company shares can be bought relatively cheaply. Risks include ability to identify a genuinely undervalued stock and timing, not buying to early or late.

Style Neutral Fund

Style Neutral or growth at a reasonable price (GARP) fund managers do not follow a particular style but aim to exploit the differences between market price and investment value within their stockholdings. Style Neutral fund managers seeks stocks with strong expected future earnings growth yet avoid stocks they believe to be “fully priced” or “overvalued”. The difficulty here relies on the stock-picking skills of individual portfolio managers rather than a clearly defined process that an entire management team is following. 

Hedge Fund

Hedge funds are a different type of managed fund. They can undertake a wider range of investment and trading activities, across a diverse range of assets such as stocks, bonds and currencies and employ a wide variety of investment strategies and techniques. They are generally not sold to the public or retail investors and are typically open to high net worth individuals and institutions, such as superannuation funds. As a result they are much less regulated. 

Global Macro Fund

Global macro fund management is again a different style of investment. Macro-style managers invest in opportunities based on macroeconomic factors, typically across regions and across the major asset classes. Interest rates and inflation levels, monetary policy, geopolitical changes and government policies are some, but not all, of the factors that can influence investment decision. The Global macro style funds are also subject to fewer restrictions. 

Asset allocation

Asset allocation is an investment strategy that enables funds to diversify their portfolio across a range of asset classes, in varying weights depending on risk appetite. This diversification helps balance risk and reward. The four major asset classes with the Australian managed funds industry are cash, fixed income (bonds), equities (shares) and property. However commodities, infrastructure, insurance products, derivatives, foreign currency and collectibles (art, coins, etc.) are also alternative investment assets.

Cash assets, such as short-term bank deposits, bills or treasury notes, are highly liquid. They are safer investments designed for a short-term period, yet also carry the lowest level of return and can be affected by inflation. Typically cash offers little potential for capital growth. Fixed interest, such as government and corporate bonds, is a more volatile asset than cash, however, it is less volatile than growth assets. Fixed interest carries a low to medium risk, depending on the counterparty, and predominantly rewards investors through a regular income stream, which is usually higher than cash investment earnings. Cash and fixed interest are classed as ‘defensive’ asset classes, designed to defend an investment fund from losses. They are popular with short-term or risk averse investors looking for more secure investments with some consistency in returns.

Property assets include both direct property (actual ownership) and listed Real Estate Investment Trust (REIT) investments across residential and commercial sectors. REIT prices move in accordance with underlying property fundamentals and broader share market volatility. Shares typically fluctuate with movements in a company’s profitability and general economic and industry conditions. As a result shares bear more risk of capital loss than cash or fixed interest. Company growth means profits can be reinvested or distributed to investors via dividends. In Australia and New Zealand, there are also tax benefits for investors through the franking credits carried by dividends. International shares also have the additional risk of exchange rate changes, though the benefits include diversification and access to emerging markets and industries not well represented in Australia. Property and shares are regarded as ‘growth’ assets. They are higher risk and more volatile assets, designed for long-term or aggressive investors willing to ride out market volatility for potentially higher returns.

An investor’s risk tolerance, ultimate goal and investment time frame all influence a fund’s asset allocation. There are various asset allocation strategies based on these factors. Strategic Asset Allocation produces an asset mix that offers optimal balance between expected risk and return over a long-term investment period. Tactical Asset Allocation sees investors take an active approach and attempt to position a portfolio into those assets, sectors, or individual stocks that show the greatest potential for gains. Core-Satellite Asset Allocation, a hybrid of both the strategic and tactical strategies, and Systematic Asset Allocation are further strategies.