Australian fund managers are increasingly focusing on high-margin alternative assets and offshore markets to combat fee pressures in the local superannuation industry. This shift comes as low-cost index investing continues to dominate the market, squeezing earnings for ASX-listed managers. Firms like Regal Partners, Pinnacle, and Magellan are targeting high-net-worth individuals and North American institutions willing to pay higher fees for hedge fund strategies and private assets. Regal Partners CEO Brendan O’Connor noted that offshore capital allocators typically invest larger amounts and are less constrained by Australian fee disclosure rules.
Navigator Global, an ASX-listed investment management firm with a market capitalization of $1 billion, is one such company benefiting from its exposure to hedge funds. Navigator has stakes in several alternative asset managers. The firm’s chief executive, Stephen Darke, highlighted that alternative assets are expected to generate half of the industry’s fee revenue, despite representing only 10 to 20 per cent of assets. Navigator is balancing dividend payouts with new investments, with a focus on North American asset managers who exhibit high-growth potential.
While the trend leans towards alternative assets, some firms aren’t giving up on active equities and the Australian market. Perpetual’s new CEO, Bernard Reilly, believes there are opportunities to grow assets in Australia and globally, citing projected growth in global equities. However, the broader industry consensus points towards a future that combines exposure to higher-margin alternative assets with low-cost index tracking strategies. Success in this evolving landscape hinges on fund managers demonstrating genuine skill and delivering returns that justify their fees, particularly when compared to cheaper, low-cost index strategies.
