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Fundies sharpen sights on Australian sophisticated investors

By Rhea Nath
5 minute read

In a recent survey, fund managers have expressed strong interest in moving away from traditional institutional sources of capital to the Australian sophisticated investor market.

A global survey of over 40 investment managers and funds has revealed a growing appetite for the wholesale/sophisticated investor market in Australia, pivoting away from institutional investors.

The Australian Investment and Funds Marketing Insights Report by Sentient Group, which aimed to uncover the ways in which Australian fund managers and investment houses are approaching the market in 2024, found 100 per cent of respondents were keen to raise capital from the wholesale investor market.

Meanwhile, more than 50 per cent expected to raise capital from onshore institutional investors and around 45 per cent were looking at offshore institutional investors.


The broader retail investor market fell to the bottom of the table, with a little more than 20 per cent of respondents indicating interest.

According to the report, the past five years have seen massive offshore institutional capital attracted into Australia, “shoring up balance sheets and adding firepower to varied investment mandates”.

“These investors, such as pension funds, sovereign wealth funds and others, have long been attracted into Australia as a stable investment destination and many fund and investment managers have had success in creating longstanding co-investment relationships with these important investors,” it stated.

“We see that these relationships will continue to be important, but the trend to convert and maintain the growing private client market will be the priority for savvy investment funds in 2024.”

Among other factors driving this growth, the report highlighted the $3.5 trillion dollars in Australian superannuation assets. Some $878 billion managed via a self-managed super fund structure, it noted, and the proportion of Australians opting to self-manage super and choose their own investment and investment strategy only looked to grow.

Additionally, with the help of wealth advisers and financial planners, the forthcoming intergenerational wealth transfer of around $3.5 trillion by 2050 looked to shape a new generation seeking a more personalised investment strategy.

“These tailwinds point to the importance for Australian funds to raise money from private clients and private markets, either individually directed or via a wealth or financial adviser. Strategies need to be in place for not just the ‘raising’ of capital, but also in maintaining that strong connection to ensure that the capital stays within the fund,” the report observed.

According to Erin Richardson, founder of Sentient Group, the survey provided insight into where funds have identified value from their go-to market activity.

“It is well-documented the growing importance of the Australian sophisticated investor market, we are seeing many prominent houses that were formerly ‘institutional-only’ bringing offerings to market targeted at growing their private audience,” she said.

“This is a trend evidenced globally where you are seeing industry titans like KKR, BlackRock, BlackStone coming out with new marketing campaigns and products designed to target these markets globally.”

In recent weeks, the sophisticated investor test has garnered much discussion, with the Financial Services Council (FSC) stating that the test needs to be updated to protect consumers.

Research undertaken by PwC and Data Analysis Australia, on behalf of the FSC, projected that almost 20 per cent of Australian households would be eligible to buy wholesale products without retail consumer protections in less than a decade.

According to the FSC, this would leave Australian investors potentially vulnerable due to not properly understanding the associated financial risks.

In order to reduce the number of households that would meet the threshold, the FSC proposed a $5 million net asset threshold for the wholesale investor test. This would bring the number of Australian households eligible back down to 3.1 per cent, it said.

“The increase in property prices in the past two decades since the threshold was implemented has contributed to more Australians being classified as wholesale investors because of the increase in value of the family home,” said FSC chief executive Blake Briggs.

When the thresholds were first introduced in 2001, only 1.5 per cent of households were captured under the current $2.5 million asset threshold and now stands at some 11.7 per cent, he noted.

“If the threshold is left unchanged, these trends are set to continue, so that by 2033, more than one in five mum and dad investors could cease to have access to the consumer protections that are inherent when you are defined as a ‘retail investor’, and instead be treated as a sophisticated, ‘wholesale investor’ regardless of whether they understand the more complex financial products they can be offered,” Mr Briggs said.