The Future of Funds Management – Executive Round Table

The consensus among attendees was that the last three years have been amongst the toughest the industry has faced. Actively managed funds have experienced negative net flows, exacerbated by fee pressures and the rising popularity of Exchange-Traded Funds (ETFs).

While globally the industry manages a staggering US$123 trillion in assets, it has been grappling with shrinking profit margins. The fee structures are nearing their lower limits, necessitating strategic adjustments to maintain profitability and shareholder satisfaction.

Relationship Management: Successful fund managers are expected to pivot towards developing comprehensive relationships with asset owners and super funds, offering multi-strategy investment solutions rather than focusing on individual strategies. This holistic approach could provide more stable and integrated pricing models.

Technology and AI: Many participants acknowledged the increasing role of artificial intelligence in enhancing operational efficiency. AI is becoming a critical tool in data analysis and reporting within investment management. Some organisations mentioned trialling their own internal custom-built and designed AI solutions to lend a competitive edge in an increasingly challenging market.

Consolidation Trends: The superannuation industry continues its consolidation trend which will impact other sectors in the investment value chain, including funds management. As this flow-on effect is felt across Australia, we will likely have fewer fund managers in years to come.

Insourcing by superannuation funds has obvious impacts on fund managers. It was noted that this theme had already played out previously in the US, and we are now seeing a partial unwind of insourced investment teams in those markets.
Currently, super funds own approximately 25% of the ASX by market capitalisation, and internal management of assets is on the rise. This insourcing trend is projected to double over the next two decades, driven by regulatory impacts and the ongoing focus on fee reduction.
While Australia is seen as an attractive market due to market size, it also has a reputation as being one of the toughest markets due to the heightened competition and fee pressure from super funds. Some global fund managers are choosing to avoid Australia for this reason. On the flip side, the executives in attendance agreed that if you can succeed with an investment product in Australia, you can probably succeed anywhere.

Product Innovation: The rise of active ETFs, managed accounts, and retirement solutions are seen as key areas of growth and innovation. These products offer new ways to package intellectual property and meet the evolving needs of investors.

Many executives in attendance highlighted that the niche or unique products they owned have been a tangible differentiator between them and their increasingly homogenous competition. They pushed that if your fund does something exceptionally well, that you are well known for, there will always be a need for interesting and bespoke products in investment portfolios thereby creating longevity in Australian fund managers for years to come.

Technological Integration: The integration of AI is anticipated to redefine operational frameworks, enhance efficiency, and provide deeper analytical insights. The executives of the funds in attendance agreed that the need for businesses to invest in exploring the utilisations of AI within their organisation was critical if they wanted to remain relevant and compete in the future for market share.