The Australian funds management industry has grown to $4.31 trillion in funds under management (FUM), according to a KPMG report prepared for the Financial Services Council (FSC), 13 per cent higher than June 2020, when this figure sat at $3.81 trillion.
But despite this overall growth, the report indicated that the proportion of FUM managed in Australia on behalf of overseas investors still remains “relatively small” when compared to other international markets and regional financial services centres.
“Australia has a globally sophisticated funds management industry, with low fees by global standards, but is missing out on the opportunity to manage offshore due to regulatory and tax policy settings that fall short of international peer comparisons,” said FSC chief executive officer Blake Briggs.
Specifically, the report found that 6.5 per cent of the overall FUM in Australia is sourced from overseas, up from less than 1 per cent in 1991 but still well below nations such as Singapore (78 per cent), Ireland (90 per cent), and Luxembourg (95 per cent).
“The significant foreign capital managed in other financial centres is not an accident. This has been achieved through a deliberate focus by these jurisdictions on regulatory and tax reform that support the global attractiveness and competitiveness of their funds management sectors,” Mr Briggs said.
A key focus of the report was the corporate collective investment vehicle (CCIV) regime which came into effect last year. The CCIV is seen as being more familiar to international inventors than traditional trust investment structures.
“While the legal vehicle has been established, with a few further changes such as including a transition regime for existing products to enter into the CCIV framework and addressing tax issues, the CCIV can become a commercially viable vehicle of global standing,” said Mr Briggs.
“The established CCIV framework offers an opportunity to showcase Australia’s investment expertise and grow the funds management sector, as a key contributor to Australia’s GDP and as an export industry.”
By addressing “structural system inefficiencies”, Mr Briggs suggested that the local funds management industry will become more attractive and competitive on the global stage.
“In the context of a domestic economy facing a broad-based slowdown, the FSC encourages the government to harness this potential driver of economic growth and employment,” he added.
Among the report’s 10 policy recommendations are to introduce a regime to facilitate the transition of existing investment funds into the CCIV structure on a tax neutral basis.
The report also recommended that the government consider reviewing existing tax rules on foreign partnerships and hybrid entities to align with competing jurisdictions, reduce compliance costs and complexity, and remove barriers discouraging investment.
Additionally, it suggested that product modernisation reforms be introduced to facilitate the transfer of investors from a legacy financial product into another product.
“An efficient and competitive Australian funds management industry delivers value to the Australian economy in the form of taxes and employment and enables Australians to create wealth and save for retirement,” said KPMG partner Cecilia Storniolo.
“A globally competitive funds management industry also has the potential to provide enhanced market liquidity, broaden investment choice for Australians, and provide greater access to international markets and potential for greater tax contribution and employment.”
Another recommendation called for the legislation of a climate-related financial risk disclosure regime for significant financial institutions and large companies in Australia so that fund managers can more effectively price climate risk in their portfolios.
Furthermore, the report recommended ongoing assessment of the Your Future, Your Super (YFYS) performance test for unintended consequences and to ensure the test’s approach and benchmarks are not “inappropriately constraining” investment decisions.
