When the Reverend WB Clarke found gold nuggets near Cox's River in the Blue Mountains in 1841, the then New South Wales governor, George Gipps, told him to: "Put them away, Mr Clarke, or we shall all have our throats cut." That warning was the start of the one of the biggest gold rushes the world has ever seen. It put Australia on the map and encouraged prospectors from across the globe to come to Australia to seek their fortunes. And so it is today. For overseas fund managers looking at the Australian market it remains a veritable goldmine. It is unlikely many managers will get their throats cuts these days, but that does not make the market any less cutthroat. The competition for the Australian retail and institutional dollar is fierce and foreign managers are prospecting this market like never before.
Australia's funds management industry is now worth over $1 trillion and compulsory superannuation means that almost $60 billion is pumped into the market every year. "It's like bees to a honey pot," BT Financial Group head of wrap and wealth solutions Chris Freeman says. "Australia is the fourth largest pensions market in the world, bigger even than the whole of Asia in terms of fund flows." It is this fact that has attracted well-known brands such as T Rowe Price, Fidelity Investments and Franklin Templeton to Australia, as well as countless boutiques. Acadian Asset Management is a recent example. It is a United States-based investment manager that has been operating in Australia since late 2005 and manages about $200 million worth of Australian money.
It distributes its funds through a partnership with Colonial First State, which it sees as a gateway to Australia's retail market. Rick Barry, managing director of Acadian's Singapore office, found the sophistication of the Australian market appealing. "Australian investors were early adopters of the types of broad global equity approaches that Acadian has advocated since our founding," Barry says. However, establishing a brand in the Australian market and building confidence in your products is a long road, littered with failure. Managers need to jump through a series of hoops before they are listed on a local platform provider and this can be an expensive and time-consuming process. Bricks and mortar
Acadian's chief executive in Australia, Chris Clayton, believes it can take up to 10 years to establish a funds management business in Australia. For him, an on the ground presence is essential. "It is feasible to build a business if you don't have an on-the-ground presence, but you need to be in your clients' time zone to reassure them, especially in markets like this. If you were offshore in the United States right now, you wouldn't even be awake yet. It's a respect thing - the least you can do is to build a local team," Clayton says.
David St John, the chief investment officer at Melbourne-based industry fund Unisuper, agrees. Unisuper has a raft of overseas managers on its mandate list and St John says he prefers those that have staff in Australia that can be readily accessed. "When there is market uncertainty or other developments, obtaining timely and full responses is critical and reassuring," he says. One way overseas managers can build a brand in Australia is through third-party marketing. Richard Darke is a senior partner at Sydney-based third-party marketer Ambassador Funds Management Services.
According to Darke, overseas managers looking to succeed in Australia need a sound investment process, well-qualified staff and on-the-ground experience. The key to making money in Australia, however, is patience. In a previous life, Darke pioneered the Fidelity brand in Australia. US-based Fidelity was a slow starter in the Australian market, and it wasn't until years after it began pushing its products that it won its first business. The breakthrough came in the form of bricks and mortar. "As soon as Fidelity opened an office it began to win mandates . we opened the office in 1996, but had been pitching in Australia since 1987. Even after establishing an office it can take a couple of years to get things started," Darke says.
Fidelity did not win its first mandate until 1998, according to Darke, but after that business snowballed. "The market needs to get familiar with what you do first, and then a manager needs to get a rating from an asset consultant or a research house," he says. He says he advises his clients to take a three-year view. "The first couple of years a manager might not get much business, but once it can demonstrate it has won business it is likely to win further mandate," he says. Clayton agrees. "The market is fickle. If you have a hot product, it's possible to build quickly, but if you want to build a stable business that stands the test of time it takes several years," he says. Build from a solid platform
A listing on one of Australia's platform providers is critical for overseas managers before they win over the retail market, but it is not an easy process. Geoff Lloyd, head of wealth management at platform provider Asgard, says his platform does not differentiate between foreign and home-grown managers. All managers have to fulfil strict criteria. These include an investment-grade rating from a well-known research house such as van Eyk or Standard and Poor's; a minimum flow commitment of over $10 million for the first 12 months; a strong business case and distribution strategy; the ability to meet liquidity on the platform and competitive pricing.
Fulfilling such criteria is a tough call for home-grown managers, let alone those that have come in from overseas. "It's all about ensuring quality and commitment and making sure managers are able to service our network of planners," Lloyd says. "Managers need to have an on-the-ground servicing team. If they don't then they won't get on our platform." Over 30 per cent of funds available on Asgard's platform are domiciled overseas and in order to get a listing they need to show commitment to the market and a good track record. "We've seen some foreign managers come and go. Planners tend to remember that," Lloyd says.
For Freeman at BT Wrap, it is all about the rating. "A rating is paramount. If you don't have a rating you have nothing. Managers need an independent evaluation," he says. But capturing the elusive retail dollar is much easier today than it was five years ago, he says. "Five to 10 years ago, managers needed a massive sales force to access the Australian market, but wraps and platforms offer consolidated distribution," he says. Where once managers had to spend vast amounts of money pounding the streets building brand and pushing their product, these days all they need to do is get a listing on a platform.
The downside of this consolidation, however, is increased competition. Foreign managers need to stand out. Peter Shepherd is head of distribution for the Macquarie Professional Series and believes there is strong demand in Australia for overseas managers, but success relies on their ability to stand out from their peers. "Our market is extremely competitive and the Australian investor is already spoilt for choice. Because of this, international managers need to be able to differentiate themselves if they are going to succeed," Shepherd says.
It is over 150 years since eager entrepreneurs from every corner of the earth flocked to Australia in search of a fortune in gold. Today, the raw commodity might have changed but the fundamentals remain the same. If you want to dig for gold in an Australian mine it stands to reason you need to beat the competition to it, but most importantly you need be on the ground in Australia with your pick and shovel. Survival of the fittest
Richard Darke, a senior partner at Sydney-based third-party marketer Ambassador, helped to launch United States fund manager Fidelity to the Australian market in the late 1980s and early 1990s. He lists his top tips for winning the Australian retail dollar
Many foreign managers underestimate the time needed to break into the Australian market. They are attracted by the size of the market, its strong cash inflows, its openness, the strong regulatory regime, its English law practice, its sophistication, and the presence of some major global asset consulting firms. But this level playing field also means many firms seize the opportunity, so it is very competitive. Only the fit will thrive. In other words, only those who are investment grade and can demonstrate a clear competitive edge and a compelling story will succeed. Ambassador advises its managers it can take up to three years to get traction and win mandates.
Fidelity covered Australia from Hong Kong for a number of years. The firm won a couple of mandates but it became clear it needed to establish a local presence. Only when it opened an office in 1996 did the market really sit up and take notice. Even then, it took a year of getting in front of consultants and setting up local funds before Fidelity began getting into finals. This is the typical pattern. You lose the first few, but then get a couple of key wins. It was only the third year [of having an Australian office] before business really took off and Fidelity secured critical mass. After five years, however, it had $7 billion worth of business.
AQR Capital - Prospecting in Australia's market
AQR Capital was founded in the United States in January 1998 by former Goldman Sachs asset managers Clifford Asness, David Kabiller, Robert Krail and John Liew. It is distributed in Australia by BT Financial Group. As of March 2007, data from InvestorSupermarket shows it has eight mandates with Australian institutional investors. These are Funds SA, QIC, van Eyk, Zurich, AV Super, LGSS and Westpac Staff Super. AQR's products span from aggressive high-volatility market-neutral hedge funds to low-volatility benchmark-driven traditional products.
Investment decisions are made using a series of global asset allocation, arbitrage and security selection models, and implemented using proprietary trading and risk-management systems. AQR believes a systematic and disciplined process is essential to achieve long-term success in investment and risk management. AQR manages about $35 billion across its series of investment products. The company is based in Greenwich, Connecticut, and employs 170 people.
