Australia had A$1.79 trillion (US$1.82 trillion) in funds under management (FUM) in the December quarter 2010, according to Austrade.

Australia’s FUM are equivalent to over 130 per cent of the country’s nominal GDP and represents around 126 per cent of domestic equity market capitalisation. The continued strong growth in FUM has been underpinned by Australia’s mandatory retirement income system. The global significance of Australia’s FUM and the maturity of our industry will see Australia develop as a fund management centre for the region. The openness of our market and the increasing demand for global and alternative product also make Australia an attractive location for foreign managers looking to establish and grow a presence in the region.

Total consolidated assets of Australia’s managed funds grew by over A$500 billion to A$1,793 billion from 2005 to 2010. Superannuation (pension) funds continue to be the largest and fastest growing component of Australian FUM – with 10 per cent growth p.a. since 2005 and totalling some A$1,278 trillion in FUM as at December 2010.

Australia’s FUM continues to rank fourth largest in the world by the Investment Company Institute’s ‘Worldwide Mutual Fund Assets and Flows’.

Superannuation funds continue to drive growth in the Australian Funds Management Industry, with the total market share of 80 per cent, once incorporating pension funds held by life insurance offices. Total pension assets (unconsolidated) rose to 112 per cent of nominal GDP in 2010, from 107 per cent in 2005.

Asset Allocations according to latest research from Morningstar’s survey of Fund Managers (representing A$995 billion in FUM) were as follows: Domestic equities and fixed Income 42.3 per cent; Overseas equities and fixed income 23.2 per cent; and other asset classes, including property, mortgages, currency/tactical asset allocation, alternatives and cash make up the difference. Of the overseas allocation, overseas equities were 17.2 per cent and overseas fixed interest 6 per cent.

Morningstar analysis reveals that Australia’s fund managers have now adopted more sophisticated investment strategies by allocating a high percentage of their total consolidated assets to currency/tactical asset allocation (6.9 per cent) and alternative investments (5.7 per cent).

In terms of total funds management, funds from wholesale (institutional) sources accounted for 69 per cent of FUM in December 2010. Foreign-owned fund managers have been active, with 12 out of the 20 largest fund managers headquartered overseas. Total FUM of these foreign companies amounted to A$387 billion, accounting for around 42 per cent of the wholesale market.5

The retail market has been dominated by domestic large institutions with 15 out of the 20 largest fund managers of local origin. Total FUM of these domestic companies were more than A$350 billion, accounting for 85 per cent of the entire retail market. This points to the strength of our local industry and its sophisticated product manufacturing and distribution capabilities. Foreign firms account for a smaller, but still significant, share of the retail market, with some A$50 billion under management.