Alternative Investment Management Association
Australia has a mandatory retirement savings policy, which is generating significant institutional demand for alternative asset classes — in combination, it is not surprising that the "lucky country" as it is known down under has become a focus for hedge fund managers the world over.
Due partly to this increase in appetite, the national hedge fund sector has grown exponentially in recent years to reach around US$31 billion in assets under management, or US$47 billion if you factor in funds of hedge funds.
According to Axiss Australia (the financial services division of Australia's inward investment agency), the combination of increasing investor sophistication and a guaranteed and rapidly growing stream of investible funds in need of a place to be parked, is driving this development.
Axiss' Executive Manager, said, “It is no secret that Australia's mandatory pension scheme has been the driving force behind the stunning growth of our nation's wider investment funds sector. Now valued at over A$1.1 trillion (US$867 billion), the pool of contestable investment funds is the fourth largest1 in the world and stands out like a beacon when you consider the country's population sits at around one-third of its nearest rival, France”.
With the cash component of wealth declining, Australians have been increasing their holdings of both equities and superannuation. In 1991 superannuation accounted for 48 percent of household financial assets and equities accounted for 12 percent. In 2006. superannuation had moved up to 55 percent and equities had a 19 percent share of household financial assets.
Retail investors, including high net-worth individuals, account for around 65 percent of the Australian hedge fund industry - and they are particularly active in funds of hedge funds and structured hedge fund products.
High net-worth investors have made significant allocations to both hedge funds and funds of hedge funds and Australia's three largest funds of hedge funds (accounting for around US$7.5 billion in assets) have sourced the majority of their funds from high net-worth individuals and retail investors.
In addition to the strong retail demand, pension fund investors have also increased their allocation to hedge funds in recent years. In 2001 only 3 percent of institutions allocated money to hedge funds-the forerunners in what has since become a fashionable sector. In 2005, some 32 percent of institutions were investing in the asset class, which compared well to the 27 percent of North American institutions investing in hedge funds and 35 percent of European institutions.
Australia's contestable pension fund market is projected to reach US$1.9 trillion by 2015, making it the largest in Asia. Comparatively, Japan's market is projected to reach US$897 billion by 2015, Singapore's US$124 billion and Hong Kong's US$112 billion2.
Since 2001, there has been a sharp increase in the number of hedge funds operating in Australia, growing from 33 in 2001 to 129 in 2006.
The rapid growth of the sector has spurred the development of Australian hedge fund and boutique fund incubators that offer seed capital in addition to start-up management and administration services. There are currently 12 such incubators in Australia.
For those considering a hedge fund start-up in ,the favourable macro environment, this is complemented by the fact that hedge funds in Australia face low start up and annual running costs. In fact, Australia has the lowest annual recurring costs of all key centres in Asia.
1 - Investment Company Institute, Worldwide Mutual Fund Assets and Flows, Third quarter 2006
2 - Allianz Global Investors, Asia-Pacific Pensions, Reform Trends and Growth Opportunities, June 2005Back to Listing