The Financial Services Council (FSC) and Perpetual commissioned a report from Plan For Life Actuaries and Researchers to bring you the 2015 Australian Investment Managers Cross-Border Flows Report.
The cross-border flows report has been produced annually since 2012 and looks at how broadly overseas-sourced funds are flowing into Australia after tax policy changes set up in 2010 due to the Johnson Report in 2009. The latest report provides precious information on what areas are increasing or decreasing in their contribution to the Australian investment landscape, and which asset classes and investor types have been altered.
The fund managers surveyed manage an estimated $43.6 billion out of a possible total of $82.7 billion of overseas-sourced funds. Between January 2010 and December 2014, investment into Australia by foreign investors has gone from $20.3 billion to $43.6 billion, with Asia Pacific the most common originating area, with over 65 per cent originating there.
The 2015 report looks at which countries fund flows are from.
So where are the inflows coming from?
Japan accounts for 56 per cent ($11.9 billion) of the funds from the Asia Pacific region. In 2015 Japan and Australian made an agreement for mutually beneficial financial trade between the two countries, which now extends to South Korea, New Zealand, the Philippines, and Thailand.
New Zealand and South Korea were also large sources of inflows to Australia, introducing $4.9 billion (23 per cent) and $2.1 billion (9 per cent) respectively.
Outside of the Asia Pacific region, the largest inflows came from the United States (9 per cent, $2.8 billion), Europe including the United Kingdom (7 per cent, $2.3 billion), the Middle East (6 per cent, $2.1 billion) and the rest of the world (13 per cent, $4.3 billion).
When these investors used Australian-based managers, fund managers were used 34 per cent of the time, pension funds were used 11 per cent of the time, and private investors were used 21 per cent of the time. A related overseas group was used 15 per cent of the time. Governments were used 4 per cent, insurance companies 4.5 per cent, and sovereign funds or trusts 6 per cent of the time.
While the funds are entering into Australian-based fund managers, more than half of these inflows are actually being redirected outside of Australia into international asset classes. This has supported the idea that Australian fund managers are just as good as their peers.
At the end of 2014, the asset class distinction was thus:
- Overseas fixed interest and cash - 15.5 per cent
- Overseas property – 11.6 per cent
- Overseas shares – 28.4 per cent
- Australian property – 4.9 per cent
- Australian fixed interest and cash – 28 per cent
- Australian shares 11.6 per cent
The Johnson Report recommendations seem to have been very successful, although as the report notes, not all recommendations were followed.