Growing returns: Financial asset investors sector starts to turn around

Investing can be a capricious undertaking. Calm conditions can swiftly give way to manic swings – it only takes a rumour, an announcement or a data release to cause destabilisation.

The investment vehicles – mostly trusts – comprising the financial asset investors industry were reminded of the fickle nature of markets in 2007-08, when several years of rising assets and revenue gave way to a total meltdown of the global economy. Over subsequent years markets remained unstable, exhibiting long runs of uncertainty and volatility. The industry had a modest year in 2011-12 and the mood is not expected to change in 2012-13.

In 2006-07, a euphoric bull market in previous years caused industry assets to surge, peaking at $331.9 billion. However, as excessive leverage in the United States unravelled and mushroomed into a global credit crunch, industry assets were savaged by a devastating global bear market that caused investments to fall for two consecutive years in 2007-08 and 2008-09. As assets fell, the return to financial asset investors, or revenue generated, contracted accordingly. Although industry revenue is expected to grow by an annualised 4.8% over the five years through 2012-13, this is due primarily to a large rebound in 2009-10. The falls of 2007-08 and 2008-09 indicate just how vulnerable the financial asset investors industry is to economic performance, interest rates, sharemarket movements and asset values.

Industry at a Glance

The barrage of bad news from afar has undermined Australian business and consumer confidence, which has fed into a number of key economic outcomes such as unemployment, credit demand, house prices and inflation.

With the RBA reluctant to cut cash rates, industry revenue is expected to grow by 7.3% to $10.1 billion in 2012-13 as investments increase. As local markets rebound, the industry will return to a growth trend, with revenue forecast to increase by an annualised 6.7% over the five years through 2017-18, to reach $13.9 billion.

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