Of the latest 100 funds launched into the Australian investment market by leading independent responsible entity Equity Trustees, the greatest number (19) were for global fixed income.  This was followed by 18 new Australian equity funds.

There were some 16 alternative funds and an equal number of global equities, domestic real assets and Australian fixed income funds (13 of each), according to The 100 – which uses the sample of the last 100 funds launched in the same period each year to compare trends.

“There was an increase in private credit and debt funds with several of these feeding into unregistered wholesale funds,” notes Johnny Francis, General Manager of Fund Services at Equity Trustees.

“Investors have recognised that non-bank lenders and their private credit funds can provide a source of income. The major traditional banks have reduced their overall lending and these newer fund managers have stepped-in to fill the gap and are being welcomed by investors.

“This is seeing more fund managers, both from here and overseas, offer these structures. We are seeing increased interest from offshore fund managers, in particular those from North America keen to access the Australian market.” reports Mr Francis.

The 100 is an innovative body of research developed by Equity Trustees and the latest report identified:

• fixed income products have increased in popularity due to rising interest rates offering better returns, continued investor interest in Exchange Traded Funds (ETFs)
• feeder funds remain popular with large global managers
• unregistered/wholesale vehicles were higher than previously, and
• continued, but slower, rise of ESG related products.

New funds created

Most of the investment dollars were into global equities, as shown below.

Mr Francis adds that when it comes to investment approach, the major focus of new funds was income and capital protection, as shown below, followed by the growth and value factor thematics.

“An important factor behind the increase in flows into global assets is largely being driven by our compulsory investment into superannuation. As the superannuation industry continues its trajectory to outgrow the total GDP of Australia, these funds must be deployed, hence asset managers and investment managers are increasingly allocating funds to products with global exposure” he says.

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Looking forward

“The next wave of funds that we see coming through are focused on alternatives, private credit and private debt with a particular focus on targeting private wealth groups.” notes Mr Francis. “We also expect the continued rise of ETFs which is an easily accessible product for investors and Self Managed Super Funds.”

He identified that there are changes occurring in distribution and marketing of foreign fund managers here. “While some fund managers apply a fly-in fly out marketing strategy or partner with third party specialists, the ideal model is having a local presence in the long term, as this is more successful with a local distribution team selling products. Institutional investors and asset allocators want to meet with key investment decision makers of the portfolio”.

Increased interest, albeit slower, in responsible investment

Mr Francis also noted that investment managers were becoming more sophisticated in their approach towards responsible investment. “The industry has progressed from simply incorporating Environmental, Social and Governance (ESG) into investment decisions or excluding companies based on a set of ethical beliefs or values. Although these practices are still commonly used, there is a clear shift towards strategies being developed that contribute to sustainable solutions and that drive forward positive impact.”

The number of funds which apply negative screens dropped compared to the previous year, he says.  “One reason is that fund managers have become more aware of their capacity to have a greater impact through investment rather than divestment, using their seat at the table to advocate for better ESG practices.

“What we are seeing now is that corporate engagement and shareholder action have grown to become the most widely used responsible investment approach, a shift. Overall, what we can see here is a slows shift towards more ‘active’ forms of ownership.

“This trend has also been driven by investors who care about where their capital is being allocated and have the desire to align their investments with their values while alongside generating financial return,” he says.

Mr Francis notes an increasing desire from fund managers for independent trustees, especially ahead of regulatory changes which are likely to include more stringent segregation of fiduciary obligations from investment decisions for Managed Investment Schemes, was driving increases in demand for external specialist trustees.

Equity Trustees is the nation’s largest and oldest specialist provider of independent Responsible Entity and trustee services. With a footprint in US, Europe, and Asia Pacific, it has the ability and know-how to service an ever-growing number of globally diverse fund managers with complex funds.

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The 100 research which examines the most recent funds launched by the country’s leading provider of independent Responsible Entity and Trustee services to fund managers found the majority of funds they brought to market were still global equity funds, accounting for almost a quarter (22%) of funds launched.

This was down from 43% of funds in The 100 in 2022.

“Domestic equity funds accounted for just 15% of funds launched,” said Johnny Francis, General Manager of Business Development and Custody at Equity Trustees.

Mr Francis said: “The next most popular funds were fixed income, with domestic accounting for 19% of funds launched, compared to 15% for global fixed income.”

“These included corporate and government bond funds, asset-backed securities and notes coming to market. We also saw several private debt and credit funds being launched.”

“This was clearly a reflection of tightening market conditions spurred by tightening fiscal policy and rising interest rates in response to rising inflation and geopolitical volatility.”

He noted that the majority of the latest 100 new funds were directed towards retail investors (47%), with less than a third (31%) directed towards wholesale investors.

He also pointed out that there was a significant increase in funds being developed by boutique managers coming out of larger organisations.

And that more than half (51%) were registered funds compared to just over a third (34%) being unregistered.

Alternative products remained popular and included commodities, infrastructure, foreign exchange, and quant strategies. Exchange Traded Funds (ETFs) accounted for 12% and Real Estate Investment Trusts (REITs) only 1%.

Dilan Ashton, General Manager of Responsible Investing at Equity Trustees, added that 13% of funds had an environment, social and governance (ESG) theme or were sustainable development goals focused.

“Generally in the market, there were record inflows into Responsible Investment offerings, reaching $1.54 trillion in assets under management (AUM), representing 43% of all professionally managed funds.

“AUM in sustainability-themed investments has more than doubled to $161 billion over the 12 months ending 31 December 2021,” noted Ms Ashton.

Mr Francis added: “Over the last year we saw a significant majority of funds launched that were hedged (84%) versus not hedged (16%). The nature of erratic rising and falling markets has created an appetite for funds to use a variety of strategies including the leverage of non-traditional assets to help manage volatility.”

Interest in digital assets stalled pending clearer regulation.

Read the report.

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Mr Francis brings significant client relationship experience, having spent seven years at Perpetual Limited, most recently as Head of Sales and Relationship Management, Managed Fund Services. He has also held senior roles at chartered accounting and advisory firm RSM Australia and corporate advisory specialists PPB Advisory.

Commenting on the hire, Russell Beasley, Executive General Manager, CTS, Equity Trustees said: “We are delighted to welcome Johnny to the CTS team. We have seen strong and growing demand for specialist, independent responsible entity services both in Australia and overseas.

“We are confident the market knowledge and experience Johnny brings to the table will help us to continue to grow the business to its full potential.”

Equity Trustees CTS division currently has more than $100b in funds under management, acting as responsible entity for nearly 300 funds and 100 investment managers. In addition, the CTS division provides a full range of trustee services including debt capital markets and securitisation, loan market and property services.

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