Brett Himbury, the chief executive of global funds manager IFM Investors – which is owned by industry super funds – has lambasted the high margins of fund managers and said IFM would rebate 7.5 per cent of the investment management fees it collected over the 2017-18 financial year.
Less than three weeks after the superannuation round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry dragged the reputations of many retail super funds through the mud – and with industry funds expecting an exodus of members to flow their way – Himbury said asset managers had long enjoyed “too much of the spoils” from “not a hugely capital-intensive business”.
“Fund managers have enjoyed exceptionally high margins for too long a period of time,” Himbury said. “Asset management is one of the most lucrative businesses…in the world. And in Australia in particular, where it is a compulsory system, we would argue that, yes, people should make a margin; however, those margins should reduce from the aggregate average levels that they’re currently at because it’s the members’ money and more of that value needs to flow through to the members.”
The global institutional fund manager with about $111 billion in assets under management said it would rebate an amount equivalent to 7.5 per cent of annual net recurring investment management fees paid by IFM’s institutional investors in 19 countries.
The total amount was in the “tens of millions”, Himbury said, without disclosing the exact figure.
It would have a flow-on effect of reducing fees and increasing net returns to millions of working people in Australia and around the world, he said.
Himbury said profits had exceeded expectations, leading to the decision to offer a rebate. IFM’s investment returns had been strong, and 89 per cent of the fund manager’s products and mandates across four asset classes – infrastructure, debt, listed equities and private equity – were meeting or outperforming client objectives on a rolling five-year basis, after fees and taxes.
Some capital was retained to ensure a resilient balance sheet and respond to opportunities, given the uncertainties facing global markets, Himbury said.
IFM is owned by 27 major pension funds. It argues this makes its interests more aligned with those of its investors than is the case with some other fund managers.
“We have a margin expectation that is well under the average that fund managers otherwise enjoy around the world,” Himbury said. “Our long-term objective, in terms of margin, is a gross profit margin of no more than 25 per cent. Funds management is not a hugely capital-intensive business but you do clearly require capital. Most funds managers in the world, according to our data, are operating on a post-tax profit margin in excess of 40 per cent.”
The timing of IFM’s announcement was not related to the Hayne royal commission, Himbury said; rather, the plan was to give institutional clients time to get through the “busy operational period” following June 30, allowing them the capacity to handle the “administrative complexity of operationalising this”.
“Having said that, nobody could have foreseen what the royal commission has subsequently unfolded,” Himbury said. “This does, in my view, nonetheless, broadly add to the veracity and authenticity of the industry funds sector.”