The Australian funds management sector is facing a shake-out as super funds look for those companies which can add genuine value, warns Frontier Investment Consulting managing director Fiona Trafford-Walker.
She says the shake-out is likely to result in a “barbelling” effect in the funds management sector, with mid-sized managers feeling the pressure from growing numbers of smaller, boutique operations and a more aggressive stance on the part of the larger, big name companies.
The shakeout is already manifesting itself in the form of staff rationalisations within some companies and falling levels of funds under management.
According to Trafford-Walker, the shake-out is being driven by continuing adverse market conditions and the pressures faced by fund trustees from members following another year of weak returns. This has forced trustees to look for managers who are skilled and can add value, which means managers may no longer be able to rely on their “names” to win new business.
Trafford-Walker says there is growing pressure on fund managers to adopt performance-based fees because it is becoming increasingly difficult to justify large payments in the face of negative returns.
“People are looking for managers who can add value and while large ‘name’ firms may be able to leverage their size in terms of distribution and costs, the institutions are saying they want alpha.”
She expects mid-size companies to hurt most because, at the same time as not being able to legitimately claim “boutique” status, they also lack the resources and reach of larger managers.
