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March 1, 2018

Listed structures for asset managers: golden opportunity or fool’s gold?

Listed structures for asset managers: golden opportunity or fool’s gold?

The business of retail asset management was – in hindsight – a simple affair even up until the first part of this century. Clients sought advice, planners sold managed funds on platform‌s, asset managers charged fees and funded much of the value chain.

The retail landscape has become much more complex. ETFs, ETMFs, LICs, IMAs, SMAs, MDAs…the list of acronyms describing potential distribution opportunities and product structures is long, and is now dominated by listed vehicles.

The appetite of asset managers to launch new and interesting vehicles via the ASX appears to be accelerating as they search for growth in a maturing overall system (netflows into super last year came in at just over 2% of assets, well below the 6%+ the market became used to up until just a few years ago).

So, is this a serious threat to asset managers and their managed funds?

Today’s chart shows two pictures: one of the status quo (top chart); the other a potentially very different future. Listed structures command only a small percentage of the retail asset management market today; more than 90% of assets remain in traditional, unlisted managed funds. With listed products taking almost half of retail net flows, the assets are growing quickly off their low base, helped in part because they are uninhibited by the outflows that weigh on the relatively more mature managed funds segment.

 

Will listed be a meaningful segment in the future?

While the volume of launches and new flows looks appealing, a better place to begin forecasting the future is to consider the sustainability of the demand drivers, which include:

  1. SMSFs moving off platform – as SMSFs seek more transparency, convenience, control and cost effectiveness in their investments, they have fled platform‌s to execute directly on the ASX, where it so happens you can now buy some of the most prominent managed funds directly without ever (in practical terms at least) seeing a PDS.
  2. Future of Financial Advice – FOFA removed an important advantage managed funds had over listed structures such as ETFs: commission payments to financial advisers. Listed structures are generally now on an even keel with their traditional counterparts
  3. Brokers – brokers are changing their models to align with a more comprehensive diversified portfolio management offer to clients, executed on the ASX and incorporating listed structures. And, the FOFA carveout for brokers mean they can charge placement fees on IPOs)
  4. Managed accounts – IFAs creating vertically integrated businesses to capture investment margin is driving demand for managed accounts. Managed accounts offer advisers efficiency gains in the execution and ongoing management of, among other investments, direct equity portfolios that regularly provide diversification via listed structures.

So should your firm manufacture listed product?

To be successful an active manager will still require a product that performs well, and a brand – which is why the ETMFs and LICs raising the most assets tend to be the same category killers in managed funds. Alas, there is no product structure that will make a less-than-stellar investment strategy fly off the shelves.

Strong investment capability aside, the key success factors for this market are in some ways different to that of traditional managed funds (where incumbency and ratings rate very highly):

  • Strong product development / product design culture and process
  • Marketing prowess (harnessing internally-generated thought leadership, but also in customer acquisition)
  • Scale in listed operating model (whether your own, or someone else’s)

While there is an attractive market forming here and one we think will continue to grow in the near to medium-term, it’s not for everyone. Few asset managers will rule themselves out based on their investment capability, but if you can’t genuinely, dispassionately and emphatically confirm you would beat your competitors in product development and marketing, save yourself the distraction and continue to play where 90% of the money is today.


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