The investment industry in Australia has grown substantially over the past decade. With strong economic growth and rising household wealth, there has been increasing demand for investment products and services. Some key trends shaping the investment landscape in Australia include:
The rise of boutique investment firms and financial advice practices. Many smaller, more specialized investment companies have emerged to cater to specific market niches. This provides more choice for investors.
Growth of passive investing through exchange traded funds (ETFs). Low-cost ETFs have become very popular with retail investors in Australia. Total ETF assets under management reached over $100 billion by 2020.
Increasing allocations to alternative investments like infrastructure, private equity and hedge funds by institutional investors to diversify beyond traditional assets.
Rapid growth of robo-advisors and digital investment platforms making investing more accessible to millennials and novice investors.
Strong inflows into Australian and international equities as the bull market rolled on. Equities accounted for over half of household financial assets by 2019.
Superannuation funds continue to be a major force, managing over $2 trillion in retirement savings for Australians. Industry and retail super funds are competing fiercely.
Regulatory changes like the FoFA reforms has led to higher compliance costs and consolidation in the financial advice industry.
Boutique investment firms filling niches
Over the past 5-10 years, Australia has seen a proliferation of smaller, independent investment companies and financial advice practices. These boutiques cater to specific investor segments or asset classes. For example, some focus exclusively on ethical investing while others specialize in microcap stocks or global macro trading strategies. Several factors have driven this growth:
– Dissatisfaction with large, bank-owned wealth managers has led experienced investment professionals to strike out on their own. Boutiques are seen as more flexible and client-focused.
– Specialist firms can accurately target investors interested in their niche e.g. an ESG boutique finding socially conscious clients.
– Developments like cloud computing reduce infrastructure costs for boutiques. They can run lean operations and don’t need a large physical footprint.
– Affluent investors increasingly want more personalized advice and boutiques position themselves to provide this.
Well-known Australian boutique investment firms include Cooper Investors, Alphinity Investment Management, Paradice Investment Management, VGI Partners and L1 Capital. Boutique financial planning groups have also emerged like Appleton Group and Lifespan Financial Planning.
Passive investing with ETFs gains momentum
Exchange traded funds (ETFs) offering low-cost access to entire markets have become a hugely popular investment option for Australian retail investors. Total ETF assets under management reached $100 billion by 2020, doubling from around $50 billion in 2016. Some drivers of this growth are:
– Ongoing education around the benefits of passive investing and portfolio diversification. ETFs provide a simple way to achieve this.
– Dissatisfaction with high-fee, underperforming active fund managers. ETFs provide market returns at a fraction of the cost.
– New product development by ETF providers covering more niches, asset classes and strategies beyond mainstream indexes.
– Increased ETF marketing and distribution reach. Online brokers and robo-advisors now actively promote ETFs.
– Strong equity market returns this decade, which benefits index ETFs tracking these markets.
Vanguard, BlackRock and BetaShares have captured most of this growth. Vanguard is the ETF market leader with over $62 billion in ETF AUM as of September 2021. Major fund managers like Macquarie have also accelerated their ETF product development in response to demand.
Institutional investors increase allocations to alternatives
Pension funds, sovereign wealth funds, endowments and other institutional investors in Australia have been increasing their target allocations to alternative asset classes. Alternatives include private equity, hedge funds, infrastructure, real estate and natural resources. Some key factors:
– Low bond yields over the past decade have pushed institutions into higher returning alternatives in the search for yield and return.
– Maturing pension funds with longer dated liabilities need return-enhancing portfolio diversification that alternatives can provide.
– Australia’s large superannuation fund sector is becoming more sophisticated and building out entire alternative investment teams.
– Institutional investor regulation allows higher alternatives allocations, within risk limits. This has accelerated uptake.
– Strong fundraising from private capital managers, with dry powder at record levels globally, provides ample investment opportunity.
Large Australian super funds like AustralianSuper, QIC and UniSuper are among the most active local institutions in alternatives. But asset owners face ongoing challenges in sourcing quality opportunities and managing liquidity risks.
Rise of digital and robo-advice investment platforms
Technology is disrupting Australia’s wealth management industry, with the rise of digital investment platforms making investing simpler and cheaper. The proliferation of robo-advisors like Stockspot, Raiz and Six Park has opened investing to mass retail audiences. Even incumbent banks like NAB and ANZ have launched robo offerings. Driving this:
– Younger generations are digitally savvy and prefer app-based investing over traditional models. COVID has accelerated technology adoption.
– Automated passive portfolios from robo-advisors are much cheaper than traditional financial advice. This appeals to cost-conscious investors.
– Reduced barriers to entry with cloud computing and turnkey robo-advisor software. New startups have emerged.
– Regulatory green light for simplified/digital advice models since 2016. Allows robo-advisors to launch and operate.
– Incumbents acquiring or partnering with fintechs for robo technology as they try to adapt to digital disruption of wealth management.
So while uptake has been strong, robo-advisors still manage a tiny fraction of total investment AUM in Australia. Most assets remain with traditional managers – for now.
Australia’s investment landscape has seen major shifts this past decade. From the rise of boutique firms and ETFs to institutional allocations into alternatives and digital disruption, investors have more choice but also more complexity to navigate. Understanding these key themes and players provides useful perspective on the changing shape of Australia’s investment industry.