It may be off the beaten track for most international roadshows but, make no mistake, fund management is booming in Australia. It is the rise of the superannuation funds – which control compulsory pension fund contributions from employers – from virtually nothing five years ago to market dominance that explains the boom in the industry in Sydney and Melbourne.
Out of some A$516 bn now under management, more than A$400 bn is in the hands of compulsory superannuation funds. That might not sound like a large figure in global terms. But it represents per capita funds under management of $27,000 compared with $31,000 in the US. What compulsory superannuation contributions – currently 9 percent of salary – mean to fund managers is a huge guaranteed flow of funds, and not surprisingly this has transformed the nature of the financial services sector in Australia.
In the past five years the number of domestically-based fund managers specializing in Australian equities has more than doubled. Partly this represents a rush of foreign players into the local market, though the domestic fund management industry has also gone through considerable change. There has been consolidation among the major players, and a contrary trend toward the creation of small boutique operators by individuals breaking away from the larger groups.
Keeping pace
Just keeping track of all the changes represents a considerable challenge for Australian investor relations officers. But as in any market the focus of attention is always on the largest fund managers, and three major changes stand out in recent years. The most significant industry consolidation was the acquisition of Legal & General Australia and Prudential Australia & New Zealand by Colonial First State Investments. This almost doubled the funds under management by Colonial to A$26 bn, creating the largest mutual fund in Australia.
Another major player, BT Funds Management, has seen its ownership change twice in the past 14 months. The institution was bought in November 1998 by Deutsche Bank as a part of its acquisition of US giant Bankers Trust, and then sold in June last year to the Principal Group of the US in a A$2.1 bn deal. Finally, one of the oldest and best known groups, AMP, has been demutualized and listed its shares on the stock market just over a year ago. So what impact have these seismic shifts in Australian fund management had on the local investor relations industry?
‘In the last six to seven years I have seen investor relations improve immensely,’ says Catherine Lewis, an analyst at Colonial. ‘We still have the odd listed company, like Brambles, that is bad at IR. But for their results most companies now have investor presentations, conference calls and dinners with key shareholders.’ But have the changes at Colonial itself affected the way IROs approach the fund?
‘Well, yes. Being bigger means that whereas we used to struggle to see the personal assistant of the CEO, the CEO now rings us. We are the largest shareholder in Telstra, for example. The largest companies now give us their time. However, it is also true that groups such as BHP are now spending more time talking to their shareholders, and seem to have adopted a policy of being more active in their investor relations programs.’
However, some of the changes in the fund management industry seem to have had little impact, besides changing the nameplates. Brian Bissaker, a vice president of BT Funds Management, reckons that the recent changes of ownership at his group have had little real impact on the day-to-day operations. ‘The management team is still intact,’ he says. ‘Principal wanted to increase its exposure to superannuation funds, and saw Australia as the ideal place for them. But we have not changed the way we work.’
It is the same story at AMP. ‘Demutualization has meant little to us as a fund management group,’ confirms Marcus Fanning, director of the active equities division. ‘What has been far more significant to us has been the arrival of many offshore fund managers in Australia. Institutions such as Merrill Lynch, Credit Suisse and Warburg Dillon Read have all bought out local groups, and Morgan Stanley has started its operation from scratch. Goldman Sachs is also talking about entering the market.’
Who’s who?
For Australian IROs the most immediate challenge presented by this proliferation of fund managers is to identify exactly who is on the share register. The true identity of many shareholders is concealed by nominee accounts, and Australian companies are not required to disclose beneficial ownership. But, of course, for an effective investor relations program it is absolutely essential to know who your shareholders are.
Several IR agencies offer services to enable companies to delve behind the nominee accounts. ‘We have pioneered a service to trace beneficial ownership,’ says Ian Matheson, joint managing director of Computershare Analytics, part of the global software giant specializing in electronic share registers. ‘It was a natural extension of our existing business. The analysis of ownership is essential to target roadshows, and means that a company is forearmed with some pretty fundamental knowledge about its shareholder base. We identify fund managers and analyze them by investor type.’
Another recent aid to share register analysis for Australian companies is the web-based database mIRacle from investor relations agency Orient Capital (note the cunning capitalization of I and R). Subscribers to the service can access this database from anywhere in the world over the web. It provides up-to-date profiles of investment institutions and contact details as well as share register analysis.
‘The database offers a continuous update in real time of who’s doing what in Australian equities,’ explains Orient partner Fay Walker. ‘It is a functional tool for investor relations officers to allow them to use senior management time to maximum effect with investors. They can see exactly who they should be talking to, and who they are. The position is particularly acute with the large number of changes which have been occurring in the local fund management industry, particularly the recent arrival of foreign groups. Who are the US managers of global Asian funds which are now taking a position in the Australian market, for example? Miracle brings all this information together into one web site.’
Tick in the box
Yet there is a threat to the very one-to-one briefings that such share register analysis is designed to facilitate. The Australian regulatory authority ASIC has recently let it be known that it is examining the establishment of ground rules for one-to-one briefings. One suggestion that has been forwarded is that companies should stick to a standard list of questions and answers, which would turn one-to-one meetings into a fairly bland interchange.
In response the IR industry has become far more proactive in the posting of information on web sites, hoping that this form of disclosure will keep ASIC happy, and dissuade the authorities from imposing a stultifying format on one-to-one briefings. Nonetheless, whether ASIC will decide to impose new guidelines in this area remains unclear, and Australian IROs are keeping their fingers crossed that web site information will suffice.
‘The use of web sites for the full disclosure of texts is definitely on the increase,’ comments Matheson at Computershare Analytics. ‘But there are still a lot of companies whose IR departments need to really get their web sites together. This is the means of communication to shareholders that is developing fastest, and will hopefully keep the regulatory authorities satisfied that enough is being done to provide the same information to all shareholders. Whether they can be bothered to access it is not really the point.’
Clearly the changing nature of Australian fund management is demanding a very sophisticated response from IROs. One investor relations officer for a financial services company who wished to remain anonymous comments: ‘The challenge is delivering exactly what each class of investor needs. If you are promoting an offer to a retail investor then that is very different to an institution. Then again the requirements of funds based onshore are very different to those based offshore.’ But he warns against the idea that fund managers are becoming all powerful.
‘The fund managers have been pushed into a more active role in recent years, and companies have to realize the value of continuous disclosure,’ he says. ‘But fund managers still don’t like to be seen to be too active. They may have more clout but they don’t want to be visible. The important thing for investor relations officers is to keep the key shareholders properly informed, and not to expect too much from fund managers.’
Indeed, fund managers regularly complain that chief executives and other senior management keep on asking them for their opinions on key strategic issues at briefing sessions. ‘I’ve lost count of how many times people have asked me for my strategic views,’ says Colonial’s Catherine Lewis. ‘Frankly, I want to know what their strategy is. I don’t want to be involved in setting it. That is the management’s job.’
