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New funds pecking order

WESTPAC’S purchase of BT Financial Group last month has reinforced the dominance of a handful of big players in retail funds management.

The industry is now dominated by the big four banks – Commonwealth, National, Westpac and ANZ – along with what used to be the two big life offices, AMP and AXA Asia Pacific (formerly National Mutual).

Collectively, the big six players have $177 billion in retail funds under management (see table). That represents 75 per cent of the total market.

The BT acquisition was also aimed squarely at lifting Westpac’s standing in the master fund/wrap account segment (see article below).

In the space of a few months, Westpac has agreed to spend $1.25 billion to acquire three fund managers, in the process more than doubling its retail funds under management.

The BT acquisition is the biggest, delivering $11.4 billion in retail funds under management. This is substantially down from the level of a few years ago, when BT was briefly the largest retail funds manager in Australia.

The outflow of retail funds from BT in just the past 12 months was a massive $5.1 billion, as a result of BT’s persistently weak investment returns.

Westpac has also acquired Rothschild Australia Asset Management (since renamed Sagitta Rothschild), which has $2.4 billion in retail assets, and Hastings Funds Management, a specialist institutional manager of ‘alternative’ assets, such as infrastructure.

These acquisitions follow a series of mega deals over the past few years, which added to the market power of the big players.

Most notably, Commonwealth Bank purchased Colonial, National Australia Bank purchased MLC and ANZ Bank formed a joint venture with ING.

More recently AXA Asia Pacific announced in July it was acquiring ipac Securities. AXA said the acquisition would give it total retail funds under management of $17 billion.

For the big banks and insurance companies, funds management has compelling strategic attractions.

It offers the prospect of assured growth, courtesy of compulsory superannuation, and provides a relatively stable annuity style income.

The big players are also hoping that acquisitions will enable them to extract greater economies of scale from funds management.

The large scale of the big players does not automatically lead to success in terms of incremental growth.

ASSIRT’s quarterly analysis of fund inflows shows that the big six have a mixed record over the past year.

Colonial First State, National/ MLC, AMP and Westpac have been the winners, consistently being among the fastest growing fund managers.

ING/ANZ and AXA have not fared as well.

They have been outpaced by smaller fund managers – notably Platinum Asset Management, UBS Asset Management and Perpetual.

Platinum is a specialist manager of international equities and has achieved outstanding returns over the past few years at a time when most international share funds have reported negative returns.

UBS has won several awards over the past year, including last month’s AFR/ASSIRT rating of Australia’s 25 best-managed funds.

UBS was the most successful manager over the long term, with five of its funds ranked among the top 25 and three among the top five.

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