Asia Pacific big Australian investors

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A study which looked at whether there is a correlation between the growth in overseas sourced funds flowing into Australia and changes to legislation and regulations, found the Asia Pacific region holds large, untapped opportunities for the Australian financial services industry.

The Asia Pacific region is still the biggest source of investment into Australian managed funds and the market will grow further if the right policy is in place, said the second annual Australian Investment Managers Cross-Border Flows Report, released yesterday by the Financial Services Council and The Trust Company.

The report shows Asia accounts for 66% of all fund flows, followed by Europe and UK at 24%. Europe and Asia account for 90% of all fund flows into Australia.

Since the first study, which started 1 January 2010, investment flows into Australia have increased by 78% from $20.3 billion to $36.2 billion – an average increase of 21.3% per year.

FSC chief executive John Brogden said the report shows the massive potential export market for Australian financial services, as revenue from overseas funds management could inject as much as $700m into the Australian economy each year.

The Trust Company CEO Shailendra Singh said Australian funds management expertise is widely recognised across the region, with an increased focus in Australia by foreign investors.

The stability of Australia’s economic and political environment has attracted a large proportion of fund flows from Asia in Australian fixed interest and cash, Singh said. This asset class made up 49% all of cross-border investment.

“While interest rates in Australia are at an all-time low, they are considered to be a good investment as they are comparatively higher than in Asia.”

The report findings also show fund managers are the largest source of inflows at 37.5%, followed by pension funds at 31.6%.

The report highlights the significant potential of Asia as a source of foreign fund flows. While Asia has 60% of the world’s population, it has 12% of the worldwide FUM market. In comparison, the US has 12% of the world’s population and 57% of FUM.

“The proportion of funds sourced from overseas has the potential to increase exponentially if the right policy settings are in place,” said Brogden. "The finalisation of the Investment Manager Regime and the Johnson Report recommendations will further grow the market potential and capitalise on Australia’s expertise as a fund manager.”

“It is clear the Asia Pacific region holds large, untapped opportunities for the Australian financial services industry, with phenomenal potential for Asia to quickly increase its overall share of funds management activity. Australia needs to ensure it is positioned to capitalise on this.

“The government has shown its commitment to the region with the signing of intent of agreement for the Asia Region Funds Passport in September. It is time to focus on completing the Johnson Report recommendations as a priority.”

The 18 fund managers covered in the study collectively manage $36.19 billion of overseas sourced funds, out of a total $77.34 billion reported by the Australian Bureau of Statistics.

Key findings
  • The flow of funds into Australia through MITs increased by 78.3% over three years from $20.3b at 1 January, 2010, to $36.2b at 31 December, 2012
  • The Asia Pacific region is the most prevalent source of fund flow into Australia with 66% of funds sourced from the region. Europe is the second largest contributor with 24% of total fund flows, of which the UK contributed 5.9%
  • Australian fixed interest and cash was the largest asset class at 31 December, 2012 – 49% of the sample
  • Fund managers were the most prevalent investor type at 38% closely followed by pension funds at 32%
  • Overseas asset classes accounted for 24% of investments.