MELBOURNE, Australia -- The Australian asset management market is expected to grow by 238% to more than A$1 trillion by 2015 and most major U.S. and European financial services groups will be battling for their share.
The growth is being spurred by a continued rise in compulsory contributions into superannuations (Australian pension funds), plus a growing appetite from the now-aging baby boomer generation for direct share investment.
A recent report by a Treasury Department researcher estimated total superannuation assets will grow to A$400 billion (U.S.$245 billion) by mid-2000 and $1.184 trillion by 2015 -- more than the estimated gross domestic product. Assets stand at $A350 billion now.
Many U.S. groups are expanding their asset management businesses and buying into the Australian financial services distributors in the two major growth areas: wholesale money management and a move of pension fund money away from large corporate funds into retail-type personal accounts.
There appear to be two distinct strategies: the full-blooded U.S. model followed by large investment houses with wide distribution, and the more subdued approach of forming strategic alliances with Australian groups.
Merrill Lynch Asset Management LP, Plainsboro, N.J., is clearly aiming at the U.S. model as demonstrated by its acquisition of institutional and private client stockbroker McIntosh Securities Inc., Melbourne. Merrill is building a sales force of over 120 through which it aims to sell its own and other managers' mutual funds.
Greg Bundy, co-chief executive of Merrill Lynch Australia, said the group's A$5 billion in funds under management is too small to be competitive against such big local players as AMP Ltd., Bankers Trust Co. and National Mutual Holdings.
Merrill Lynch would like to have A$20 billion to A$25 billion under management, but a move to buy a major master trust (multimanager) operation recently failed, when a local bank out-bid it.
Salomon Smith Barney Holdings Inc., New York, also plans to reproduce its U.S. model in Australia. It already has bought the County NatWest brokerage as an entree to institutional brokerage. More recently, it paid a reported A$120 million for the Australian funds management business of J.P. Morgan Investment Management Inc., New York.
J.P. Morgan had A$9 billion in institutional money, although the group just launched a master trust to offer a master trust superannuation product for the proposed choice-of-fund regime.
Salomon Smith Barney Asset Management has revealed it is looking at alliances with groups outside the securities business -- such as telephone or electricity companies. It also is looking to introduce its new wrap account products to Australia.
Charles Johnson, president of Franklin Resources Inc., San Mateo, Calif., visited Australia in June, but was noncommittal about plans. Franklin has only a listed investment trust, Templeton Global Growth, Melbourne, and an emerging markets fund for institutional money that is in the top quartile of performers.
State Street Global Advisors, Boston, is looking more to a slow buildup of institutional money in Australia than to a spectacular acquisition. It has about A$11 billion of funds under management. Nick Lopardo, chairman and chief executive of SSgA, said during a recent visit to Australia that SSgA is more likely to form ties with local distributors or to make selective purchases, along with some liftouts of competitors' teams of professionals, than to make an acquisition.
Vanguard Investments Australia, Melbourne, has opted for a strategic alliance with MLC Ltd. Group, Sydney, marrying its communications and administrative skills with MLC's Australian distribution network. It has quickly amassed A$3.8 billion of institutional money in its index funds.
Jeremy Duffield, Vanguard's Australian managing director, believes there is great potential in Australia for use of master trusts.
Fidelity Investments Australia, Sydney, has pursued a strategic alliance with Perpetual Funds Management, Sydney, cobranding a series of international equity funds.
Fidelity also runs several institutional overseas equity funds.
Other big U.S.-based money managers that operate specialist foreign equity funds for institutions in Australia include: Alliance Capital Management LP; Capital International Ltd.; Citicorp; Fiduciary Trust Co. International; Marvin & Palmer Associates Inc.; MFS Institutional Advisors; Morgan Stanley Asset Management; Oppenheimer Capital; Prudential Insurance Co. of America; Sanford C. Bernstein; Scudder, Stevens & Clark Inc.; and Wellington Management Co.
In Australia, mutual fund-type products weren't popular until about 10 years ago, so larger investment banking groups and stockbrokers concentrated on business from institutions and high-net-worth investors.
Mutual fund-type products were distributed mainly through life insurance office salesmen and financial planners earning commissions from fund managers.
Australia has seen growth of local banks as both fund managers and retail distributors of investment products.
Meanwhile, the fastest-growing part of the superannuation industry is retail, according to the Insurance and Superannual Commission, Canberra, Australia. Contri- butions rose 42% against an industrywide rise of 15% during the fiscal year that ended June 30.