Australia superannuation: gearing up for growth?

Despite a booming domestic economy, Australia’s asset managers are taking an increasingly global approach to investment. But in the face of changing regulation, both at home and abroad, do they have the robust global technology to fuel their international ambitions?

While most of the northern hemisphere has been gripped by credit crunches and financial turmoil, strong demand for Australia’s abundant natural resources – especially in key markets like China – have helped it ride the economic storm. In its microclimate of favorable economic conditions, the country’s asset management sector is in particularly fine form, reflecting Australia’s healthy attitude to investment in general.

In fact, personal investment has long played a major role in everyday Australian culture. Back in the 1990s, the privatization of utilities like Telstra brought a new breed of everyday investor into the stock market. Even more notably, since 1992, the investment management industry has also been buoyed by the state’s compulsory “superannuation guarantee” system. This requires employers, by law, to contribute a proportion of employees’ salaries (currently 9% but soon to rise) into a designated retirement fund, as pension provision.

The result has been a proliferation of superannuation vehicles, not only driving accelerated levels of growth for asset managers, but also forcing them to create ever more diversified portfolios. Having squeezed all they can from the domestic market, that may mean looking further afield: to more complex, esoteric investment instruments, most typically created in the US and Europe.

Here, an international approach to asset management software can pay its own dividends. The more global a solution’s focus, after all, the more adept it should be at handling different asset classes from around the world. But in Australia, as in many domestic markets, investment management technology must also be ready for a host of national regulatory nuances. That means, for example, being able to manage the real-time calculation of tax, with a tax pool that’s part of the daily net asset value. Then there are franking credits and a whole range of income, capital gains and business taxes to consider. Last, but certainly not least, come the recent changes made under Australia’s taxation of financial arrangements (TOFA).

Again, however, asset management software with a global footprint brings its own advantages, having already risen to regulatory challenges in other markets. Nuanced as they may be, the new rules of TOFA also bring Australia very much in line with the latest International Financial Reporting Standards (IFRS). So, any firm currently using a global solution effectively gets a head start in developing TOFA-specific functionality. That goes for whether it’s an Australian asset manager looking to diversify its superannuation portfolios – or an overseas outfit with an eye on the Australian stock market.

In other words, going global means supporting local too. And for superannuation vehicles, a combination of international expertise and local know-how could go a very long way – setting them on an even faster road to global growth.