More global funds managers will expand their Australian lines of business over the next few years, but they may become frustrated if they attempt to introduce distribution efficiencies in the local market, according to Ben Phillips, a managing director of international research and advisory firm Putnam Lovell.

Phillips, who is head of strategic analysis for the firm, now a part of the Jefferies group of Canada, was speaking at a one-day seminar in New York late June – Opportunity Australia – which was organised by Conexus Financial with assistance from Austrade. About 80 US funds managers – both traditional and alternative – were told that growth in the Australian market, which was expected to represent half of the total funds in Asia by 2015, could replace unstable flows in other expansion markets.

Foreign firms were emerging as potential buyers of Australian equity boutiques, of which there were too many, Phillips said. “However, packaging and distribution for the Australian market remains very much a local game… Local distribution norms can frustrate the implementation of a global service model,” he said.

For instance, Australia was an “advice-heavy industry”, and its use of platforms had sped the evolution to a “fully wholesale” marketplace. The high dependence on advice for tax and super meant that distribution leverage could be both significant and costly. Therefore, foreign entrants were likely to focus on large sub-advisory mandates, either with platforms or super funds, which had both pros and cons because of their lumpy nature.

Alternatives, including long/short strategies, represented an area of high growth for new participants, because Australia’s product development needed to “kick into a higher gear”, Phillips said. A total of 11 speakers addressed the one-day seminar, which was opened by Dennis Richardson, the Australian Ambassador to the US, and which was designed to provide advice on how funds management firms should go about expanding their interests in the Australasian region.

Another speaker, Peter Gunning, the global chief investment officer for Russell Investments, spoke of how the multimanager phenomenon had quickly evolved to dominate the Australian funds management landscape, more quickly than in the US and most other markets.

An estimated 80 per cent of superannuation savings were invested in multimanager products, with all of the country’s largest institutions and their aligned financial planning businesses offering them, Gunning said. But in the US, multimanager is still niche product.

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