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1301.0 - Year Book Australia, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/01/2006   
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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 to 2003 but then accelerated again during 2003 to 2005. The main influence on this growth pattern has been share market prices.

Graph 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 total funds management industry. One approach is to take the consolidated assets of collective investment institutions (as given 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

2003
2004
2005
$m
$m
$m

Total consolidated assets of collective investment institutions
677,911
789,617
922,934
plus total FUM(a) of investment managers sourced from Australian entities other than collective investment institutions
169,524
194,458
208,607
plus total FUM(a) of investment managers sourced from overseas
16,799
25,636
29,910
less total FUM(a) of investment managers sourced from other investment managers
42,145
38,014
24,553
Total
822,089
971,697
1,136,898

(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 2005

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

Life insurance corporations(a)
220,348
31,469
188,879
Pension funds
587,541
83,523
504,018
Public unit trusts
205,481
26,189
179,292
Friendly societies
6,519
1,924
4,595
Common funds
9,954
324
9,630
Cash management trusts
36,520
-
36,520
Total
1,066,363
143,429
922,934

(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 2005, $598.4b (56.1% 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 2005, investment managers invested $238.5b 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 2005

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

Life insurance corporations(a)
220,348
138,126
Pension and approved deposit funds
587,541
321,275
Public unit trusts
205,481
98,923
Friendly societies
6,519
2,329
Common funds
9,954
9,235
Cash management trusts
36,520
28,484
Total
1,066,363
598,372

(a) Includes both superannuation and ordinary business.

Source: Managed Funds, Australia (5655.0).


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