When BT Investment Management chief executive Emilio Gonzalez and JO Hambro Capital Management group chief executive Gavin Rochussen laid out the strategy for their combined future in September, they were somewhat muted on the likelihood of selling JO Hambro funds in the Australian market.

"There is opportunity in terms of which products will be attractive and I think emerging markets is an attractive one, but we will do that in the context of getting the maximum price for the JO Hambro product because they are sold across the world. The capacity will be allocated to where it is most valued," Gonzalez said.

To put it more bluntly: why allocate capacity to the Australian market if you can get almost double the fees in Europe or the United States?

The proposed MySuper fund is sometimes portrayed as the culmination of the low-cost investment model, but decades of pressure on active managers to reduce their fees have made Australia one of the most competitive asset management industries in the world.

Investors have profited from this development as they have been able to negotiate favourable mandate terms.

But is there a point where investors will start losing out as managers decide to avoid the local market and the available range of quality products starts shrinking?

Investec Asset Management Australia managing director Mark Samuelson believes there is.

"[Investec head of sales and marketing] Justin [Cowper] and I were recently at a conference and one of the things that is more prevalent is that although people like this part of the world, when you start speaking to some of the international guys that are down here they say 'look, we are losing a bit of interest'," Samuelson says. 

"They'll say: 'It is incredibly competitive and also the whole fee thing in this part of the world is very competitive.'

"It is a very competitive space; there are lots of international players."

The issue of where to offer a product is especially pertinent where it involves products that have high costs associated with the investment process and strict capacity constraints, including sector, regional or emerging market funds.

Samuelson admits Investec is dealing with the same considerations of where to best allocate capacity.

"Especially when you are talking about capacity constraint products, I can sell my Malaysian equities portfolio at 75 basis points in the [United] States, Europe, Middle East and you come over here and the guy wants 35 basis points," he says. 

"For us, it's basically saying: 'Thanks boys, but you're not getting any capacity allocation to your region.' It is something we have to watch."

Cowper says it is also becoming an issue for international managers that have been considering establishing a local office.

"The pressure on fees is amazing," he says.

"When you start looking at it from the perspective of an international player coming to Australia, the picture is not as attractive as it once was.

"The dollar hurts you, so all of a sudden you are setting up the Australian office and it costs you twice as much than what it might have.

"Then you're going to the funds that are now consolidating and they're saying 'well we now only want global equities at 30 or 40 basis points, thanks very much", and that hurts.

"A lot of these funds, including ourselves, are getting a lot of traction in the UK and the US and so we might have a mandate and the fee will be double that of the Australian mandate, just because the appetite to accept fees in the US is a little more flexible."

Some of the super funds' asset consultants have been among the most active campaigners of low management fees. Frontier Investment Consulting has been pushing for managers to accept a flat rate fee, rather than an asset-based fee.

JANA uses a fee pricing model that suggests fund managers should not receive more than a third of the outperformance they generate in fees.

"All trustees have to make an assessment as to whether what you are paying is going to be rewarded. There is risk associated with everything and what we've been trying to do is set some frameworks with those risks," JANA head of investment outcomes Ken Marshman says.

Marshman is not concerned too much about the possibility some products may never reach the Australian market.

"In the main, that is probably not a bad thing. If a manager thinks that they can get better returns for themselves elsewhere, so be it," he says.

He acknowledges some products are more costly to run and therefore come with higher fees.

"One of the basic principles is that the fee should be structured to reward the cost of undertaking that work and it should be there to reward the intellectual property and the value add," he says.

"With an emerging markets fund, where you have a lot of travel and a lot of people spread across various parts of the world, then the underlying natural cost of running that service is high.

"Once you take all of that into account and look at the outperformance that you expect to get from a manager relative to a passive approach, you still have got to say: 'Am I sufficiently rewarded for appointing that particular manager?'

"Many emerging managers have had mixed performance or not consistent outperformance, whether they have had high costs or not."

Not having a consistent outperformance is also problematic, he says, because you have to pay the fee when a manager outperforms, but you are not getting a rebate when they underperform.

"I do worry, because does [our approach] mean we are being arrogant?" he says.

"The truth is that on average managers have not delivered on their promise and they have taken a fair slice [of returns], so I would be very surprised if I regret those decisions."