After rushing in to capitalize on the introduction of compulsory retirement savings in the early 1990s, many European money managers with Australian operations are struggling to stay alive Down Under.
Australia's pension marketplace is the sixth largest in the world, and has become known as one of the toughest for money managers, given the competition to win the relatively small amount of assets by the large number of players. Indeed, a number of money managers are considering getting out, and, these days, even fewer are choosing to enter.
While many U.S. money managers have succeeded in Australia, some of the biggest names in European money management have not. They include AXA SA and BNP Paribas, both in Paris; Schroders PLC, London; Royal & Sun Alliance, London; and CGNU, Norwich, England.
"The fact is, Australia is a tough market to be in," said Ben Phillips, a managing director of money management consultants Cerulli Associates, London.
More to come
Estimating that only one-third of money managers operating in Australia are profitable, Mr. Phillips expects further consolidation. The big domestic money managers have bought up several smaller firms already, and global players such as Amvescap PLC, London, which recently purchased money manager County Investment Management.
The problems vary, but common themes are the 25% decline in the value of the Australian currency vs. the U.S. dollar, unsuccessful acquisitions or simply woeful investment performance.
With a few notable exceptions, including Deutsche Asset Management, Frankfurt, and UBS Asset Management Inc, New York, European managers haven't as been successful in Australia as American managers, consultants say.
"I guess the Americans have either targeted niche areas, such as global equities, or have been smart on their entries, whereas the Europeans have tended to come in and buy, which in many cases hasn't gone so well," said one London-based investment consultant, who did not wish to be named.
Late last year, for example, BNP Paribas' Australian money management arm lost one-third of its institutional business because of disastrous performance and the departure of key staff, including the chief investment officer, the head of local equities, the chief economist and several portfolio managers and analysts.
None of the defectors has been replaced, and industry sources expect the company to give up on Australia later this year.
While there are no definite exit plans for Schroders, Nicky Richards, head of its Australian operation, admitted the firm didn't meet key growth targets set out two years ago. The 2000 business plan, formulated in London, aimed to have assets under management of $7 billion by 2003. Instead, the group has about $2.7 billion, almost half of which comes from offshore clients. (All assets are in U.S. dollars.)
And, the Australian business is draining the parent's resources. According to a financial report filed last month with Australia's securities commission, Schroders Investment Management (Australia) Ltd. suffered a net loss of $1.3 million.
At least one company - Royal & Sun Alliance, London, - has placed its Australian business up for sale.
When RSA purchased independent Sydney-based life insurer and money manager Tyndall Investment Management Ltd. in 1999, the deal triggered a walkout of key investment staff to a rival Manager. Many institutional clients followed them, and most of the clients that stayed terminated the firm when performance deteriorated the following year.
At rival British insurer Norwich Union, Norwich, England - now part of the CGNU group - the purchase of money manager Portfolio Partners, Melbourne, eventually led to the loss of some $3 billion in institutional mandates as well as its market-leading position. Norwich has written off most of the value of the investment operation.
While the fate of CGNU's operation remains unclear, investment banking sources close to the deal have confirmed RSA's Tyndall business is being auctioned. RSA is unlikely to receive the amount it paid in 1999, the sources said.
U.S.-domiciled money managers in Australia have fared better. Companies such as State Street Global Advisors, Boston; PIMCO, Newport Beach, Calif.; and Merrill Lynch & Co. Inc., New York, have carved out enviable market positions in Australia.
But not all American money managers have been successful. Principal Financial Group, Des Moines, Iowa, paid $1.4 billion three years ago to buy Bankers Trust's Australian money management operation from Deutsche Bank AG. Last year, Principal said it had written off more than $400 million of the value of its new Australian subsidiary. PFG attributed the decline to BT's poor investment performance, the loss of major institutional mandates and a decline in the value of the Australian currency vs. the U.S. dollar.