Australia’s missed opportunity

Our financial services industry is punching above its weight compared to other global players, but has this success at home caused us to become complacent when chasing opportunities offshore?

As a nation, Australia has the world’s fourth largest savings pool (largely thanks to compulsory superannuation), and its financial services sector is the country’s largest industry, generating 8.6 per cent of GDP and employing over 400,000 people.

Growth in this sector is set to continue and is currently increasing at a rate of 1.5 times that of the broader economy. However, until now, this has largely been within Australia’s own shores.

“So far it’s definitely a missed opportunity,” Nikko Asset Management managing director Sam Hallinan says.

“Statistics show that Australia has $2.8 trillion in assets under management (AUM), yet less than 4 per cent is sourced from offshore investors.”

The bulk of this, 62 per cent, is sourced from Asia, with Japan being the largest contributor at 25 per cent.

This is in stark comparison to other countries, where funds from non-domestic investors make up a significant proportion of assets under management. In Singapore, 80 per cent of AUM comes from offshore, while this equates to 65 per cent and 40 per cent, for Hong Kong and the UK respectively.

“We’re fat and happy and aren’t looking for our next meal,” Hallinan says of the industry.

“A lot of businesses have more money than they know what to do with, so [they believe] there’s no need to look elsewhere.”

However, with traditional asset management coming under increasing pressure, Hallinan expects more mainstream players will soon turn their focus towards Asia to combat short-termism, and take advantage of what’s been dubbed ‘the Asian century’.

This concept, which has received bipartisan support, was touched on by Shadow Treasurer Chris Bowen during his address at the Financial Services Council (FSC) annual conference in Sydney last week.

Bowen said a step-change was needed for Australia to stop paying “lip service” to the idea of the Asian century and to take up the opportunities that would continue to stem from Asia’s growing middle class.

As the only fund manager in Australia head-quartered in Asia, Nikko AM has a clear advantage to lead the charge and export its asset management capabilities to the Asian region.

Indeed, Hallinan believes this is necessary for the continued success of the company, and the sector more broadly. Despite the industry has been returning double digit growth each year, a forward-looking, and long-term approach is needed to ensure success in the future.

Demand is also expected to increase in-line with the burgeoning middle class in Asia, and as financial services markets come of age.

“As the Asian financial services sector matures, so too will the types of products in Asia,” Hallinan says.

“More mature products will provide more diversity in asset solutions for the market, which means good things for Australia.”

 

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19 June, 2017

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