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1301.0 - Year Book Australia, 2007  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2007   
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Contents >> Financial system >> Managed funds

MANAGED FUNDS

The term 'managed funds' is used loosely in the financial community to embrace two broad types of institutions. The first are collective investment institutions (such as life insurance companies) which buy assets on their own account. The second are investment or fund managers which act as investment agents for the collective investment institutions as well as others with substantial funds to invest. Investment managers have relatively small balance sheets because most of the assets they acquire are purchased on behalf of clients. The significant growth in managed funds up to 2000 (graph 26.22) eased during the period 2001-03 but then accelerated again during 2003-06. The main influence on this growth pattern has been the price of shares on the stock market.



26.22 MANAGED FUNDS, Consolidated assets - 30 June 26.22 MANAGED FUNDS, Consolidated assets - 30 June


The managed funds industry is a difficult one to measure because of the large amounts of financial interaction between collective investment institutions and fund managers, and between fund managers themselves. Consequently, double counting of funds which are 'churning' through the system is a difficulty which needs to be addressed in order to derive a true measure of the funds management industry. One approach is to take the consolidated assets of collective investment institutions (as shown in graph 26.22), add to it those funds managed on behalf of other clients such as governments, corporations, charities, overseas clients and 'net-off' funds sourced from other fund managers. Table 26.23 provides a measure of the total funds management industry as at 30 June for the past three years.


26.23 MANAGED FUNDS INDUSTRY, Total funds under management

As at 30 June

2004
2005
2006
$m
$m
$m

Total consolidated assets of collective investment institutions
756,632
869,545
1,027,515
plus
Total FUM(a) of investment managers sourced from Australian entities other than collective investment institutions
198,909
223,981
242,608
plus
Total FUM(a) of investment managers sourced from overseas
26,615
30,933
40,537
less
Total FUM(a) of investment managers sourced from other investment managers
42,465
39,927
24,780
Total
939,691
1,084,532
1,285,880

(a) Total funds under management.
Source: Managed Funds, Australia (5655.0).


COLLECTIVE INVESTMENT INSTITUTIONS

As the name implies, collective investment institutions pool the funds of many small investors and use them to buy a particular type or mix of assets. The asset profile can be structured to satisfy individual investor requirements regarding, for example, the degree of risk, the mix of capital growth and income, and the degree of asset diversification. Collective investment institutions comprise the following:
    • life insurance corporations
    • pension and approved deposit funds
    • public unit trusts
    • friendly societies
    • common funds
    • cash management trusts.

Funds of a speculative nature that do not offer redemption facilities - for example, agricultural and film trusts - are excluded.

To derive the total assets of collective investment institutions in Australia on a consolidated basis, it is necessary to eliminate the cross investment between the various types of institution. For example, investments by superannuation funds in public unit trusts are excluded from the assets of superannuation funds in a consolidated presentation.

Although statistics for each of these institutions were presented earlier in this chapter, the accompanying tables summarise their consolidated position (i.e. after the cross investment between the institutions has been eliminated). Table 26.24 shows their assets by type of institution.


26.24 ASSETS OF MANAGED FUNDS - 30 June 2006

Total
Cross invested
Consolidated
Type of institution
$m
$m
$m

Life insurance corporations(a)
238,278
34,543
203,736
Pension funds
716,391
171,680
544,710
Public unit trusts
260,176
34,120
226,056
Friendly societies
6,735
2,136
4,599
Common funds
10,687
454
10,234
Cash management trusts
38,181
-
38,181
Total
1,270,448
242,933
1,027,515

(a) Investments by pension funds which are held and administered by life insurance offices are included under life insurance offices.
Source: Managed Funds, Australia (5655.0).


INVESTMENT MANAGERS

Specialist investment managers are employed on a fee-for-service basis to manage and invest in approved assets on their clients' behalf. They usually act for the smaller collective investment institutions such as public unit trusts. They are not accessible to the small investor. Investment managers provide a sophisticated level of service, matching assets and liabilities. They act in the main as the managers of pooled funds, but also manage clients' investments on an individual portfolio basis.

A considerable proportion of the assets of collective investment institutions, particularly the statutory funds of life insurance corporations and assets of pension funds, is channelled through investment managers. At 30 June 2006, $689.7b (54.3% of the unconsolidated assets of collective investment institutions) were channelled through investment managers. Table 26.25 shows the total unconsolidated assets of each type of collective investment institution and the amount of these assets invested through investment managers.

Investment managers also accept money from investors other than collective investment institutions. At 30 June 2006, investment managers invested $283.1b on behalf of government bodies, general insurers and other clients, including overseas clients.


26.25 ASSETS OF MANAGED FUNDS, Invested through investment managers - 30 June 2006

Unconsolidated assets
of managed funds
Assets invested with
investment managers
Type of fund
$m
$m

Life insurance corporations(a)
238,278
140,074
Pension and approved deposit funds
716,391
393,154
Public unit trusts
260,176
113,324
Friendly societies
6,735
2,378
Common funds
10,687
9,357
Cash management trusts
38,181
31,386
Total
1,270,448
689,673

(a) Includes both superannuation and ordinary business.
Source: Managed Funds, Australia (5655.0).


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