ASIC asked Deloitte Access Economics to undertake independent research examining competition in the funds management sector with a focus on the outcomes that the industry is delivering for investors in retail managed investment schemes.
The outcomes of the review were presented in ASIC Report 702 – Competition in Funds Management. We had the pleasure of hearing the key findings from the Report’s authors Ben Lodewijks and Stephen Burgess, from Deloitte Access Economics, in a recent member only briefing.
It was pleasing that the evidence points towards effective competition in the managed funds sector, which can be seen by new market entrants, innovation and low fees by global standards.
We have a funds management industry which has grown strongly over the last 30 years, managing almost $2.5 trillion in consolidated assets (as at March 2021).
At the same time however, industry concentration has declined, with divestments by financial institutions and new entrants coming in from overseas markets. Whilst overall industry concentration is similar to the United Kingdom (where approximately 50 per cent of FUM is held by the top 10 managers) Report 702 noted that three of the largest fund managers in Australia by funds under management in 2019 were international managers who were not among the top 10 fund managers in Australia in 2009.
Some of the other key findings include:
- There are legal and structural barriers to entry – in the member briefing with Deloitte Access Economics, we explored the balance that needs to be achieved between regulation and consumer safeguards. For example, it is important that those who run an Managed Investment Scheme (MIS) have the requisite knowledge and experience notwithstanding that may also present a barrier for new entrants.
- Investors have diverse preferences and choose funds for a variety of different reasons; for example – fund selection is shaped by the investor objectives, what the fund invests in, performance, and information such as that provided by research house ratings; and
- Overall, retail investors make up a small fraction of aggregate funds under management, accounting for approximately 5 per cent of overall funds under management based on directly held investments and available ABS data. However, retail investors commonly access managed funds through superannuation. Superannuation makes up more than half (57 per cent) of the managed funds industry by funds under management, with the remainder being held by other investor types (including retail, government and other institutional investors).
Report 702 is available on the ASIC website for those interested in further insights.
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