Foreign investment into Australia through managed investment trusts (MITs) has more than doubled in the last five years, but there is still potential for further growth, according to a new report.
The 2015 Australian Investment Managers Cross-Border Flows Report by the Financial Services Council (FSC) and Perpetual estimates that $43.6 billion in foreign investments into Australia were made through MITs at 31 December 2014 – up from $20.3 billion at 1 January 2010.
While the increased investment has created more activity in the Australian economy, there remains “untapped potential” due to the lack of growth in financial services exports, the report said.
“As Australia transitions into a services-orientated export economy, the expertise of our world-class fund managers and cross-border trade of financial services will become imperative for our future economic growth,” said FSC chief executive Sally Loane.
“The opportunities to export Australian financial services are significant and making sure we have the right regulatory architecture in place will play an important role in determining our level of success as an exporter.
“As the fourth-largest funds management industry in the world, worth $2.6 trillion, having the right policies in place to enable the trade of financial services, particularly with Asian markets, has the potential to stimulate economic growth in Australia.
“We need to reduce the complexity and confusion associated with our withholding tax regime, decrease withholding tax rates to make them more competitive with other countries, and complete the outstanding Johnson recommendation to broaden the range of collective investment vehicles, so we are not limited to trusts,” she said.
In addition, the report shows nearly two-thirds (65 per cent) of all fund inflows are sourced from the Asia region, with Japan accounting for 56 per cent or $11.9 billion of these funds.
Perpetual chief executive and managing director Geoff Lloyd said: “Our geographical location means our neighbours in Asia Pacific region are natural trading partners for us and recent free trade agreements will help further stimulate funds flows across the region.
“We’re making good progress on the Asia Region Funds Passport and free trade agreements with Japan and Korea are already having a positive impact on flows. With the China agreement now passed through parliament and the Trans-Pacific Partnership underway, there is strong momentum to achieve further growth in the Australian economy in the near future.”
Further, the skills of Australian investment managers are being sought in managing global investment portfolios, with the report saying that 56 per cent of fund inflows to Australia are being invested offshore.
“It is encouraging to see Australia’s world-class investment management expertise being sought after globally,” Mr Lloyd said.
“Global equities are a key part of Perpetual’s growth strategy and these findings support the growing demand we are seeing for global investments.”