Cracks are appearing in the ‘wall of money’ standing in term deposits, with the beneficiaries being liquid fixed-income funds, but the outlook for traditional mortgage funds looks bleak according to an analysis from wealth management strategists, Tria Investment Partners.

Tria IP partner, Andrew Baker, said the $70 billion flood of post-GFC cash into bank term deposits was now beginning to ease, however it had devastated mortgage funds, cash management funds, and fixed-income funds.

The industry must devise new ways “to capture service”, Baker said in Tria’s report, ‘The wall of money: term deposits and the BDM’s lament’.

Structural demand for yield will continue to increase as the population ages, so there would be a ”good market for high-quality, liquid fixed-income funds which diversify the limited direct lending opportunities in Australia”, he said.

“Their returns should offer enough of a premium to make them compelling again when deposit rates drop. For managers with the right products, it’s a waiting game,” Baker said.

It was possible that a new generation of term-based mortgage funds would emerge, with withdrawal features that better matched the underlying assets, he said.

The evolution of a retail bond market could be spurred, along with the possibility of government bonds being traded on the ASX in retail parcels.