ThNineteenth-century Australia - before the introduction of publicly funded welfare, healthcare and education - was a tough place for families who weren't wealthy or didn't have high-paying jobs. To fill this void, member-based associations, such as friendly societies, formed to collect regular contributions from members and place them into common funds that would be used to support members in times of hardship.
Members of these societies held meetings in local halls, and while they were generally closed to the public, they were run democratically with elected officebearers.
As civic-minded groups, they would often run street parades to attract new members and support local causes.
Friendly societies were not investment institutions, but they laid the foundation for Australia's financial sector that would eventually comprise banks, insurance companies, investment managers, super funds and trust law. Some of Australia's most famous financial brands, such as IOOF, Foresters and Hibernian, have their origin in these groups. Even though the Australian Mutual Provident Society (AMP) started in 1849 and National Mutual Life Association of Australasia (National Mutual) started in 1869, these were not investment but insurance groups.
In those days, when working people wanted to save money their only option was depositing it into a bank. Wealthy people might have been able to place their money into a government-issued bond. In 1936, Hugh Walton changed all this when his company, Australian Fixed Trusts (AFT), launched a set of money market trusts through which members of the public, usually restricted to wealthier people, could invest in securities. AFT was based on investment trusts that had been operating in Britain since the 1870s. AFT's entry fees were 7.5% and promised returns of 10%pa.
The idea caught on. JBWere & Son, Australia's leading stockbroker (it had first opened in 1839), soon opened three similar money market unit trusts to supplement the equities investment trust they had been operating since 1928. Progress in the investment trust sector was nevertheless slow - by 1965 it managed only $250 million on behalf of about 100,000 people. In 1959, the Hooker Investment Corporation, which started life as a real estate agency in 1928, launched Australian Land Trusts, Australia's first unit trust specialising in property. It became popular and within a decade was offering 31 trusts.
Australia's 1960s stockmarket slump saw interest in investing through unit trusts wane, with many of the small equity trusts closing down. But in 1972 interest in unit trusts reawakened when the Trustees, Executors & Agency Company (TEA) expanded beyond just servicing the money market, with the help of Keith Halkerston, a senior executive at stockbroker Potter Partners. US investment banks soon followed in 1975, launching public managed funds focused on international equities.
Sensing the trend, in 1980 UK merchant bank Hill Samuel opened inAustralia, launching a cash management trust. In 1985, following a series of acquisitions, the business obtained its Australian banking licence and renamed itself Macquarie Bank. The success of the newly formed Macquarie Bank prompted ANZ to buy AFT, Were Securities to launch a series of new funds, and Bank of America and the Royal Bank of Canada to enter the market. The momentum this was creating spurred several investment management specialists to launch their own retail funds, one famous group being Clayton Robard, which was started by former AFT executives.
Responding to this growing popularity of investment funds, magazine publishers in 1983 introduced Australia's first investment fund league tables, which triggered interest in assessing funds and sparked the launch of investment ratings and much broader public scrutiny of managed funds.
Up until the 1980s, the life insurance sector had largely ignored managed fund investments, preferring instead just to add a few investment features to their traditional policies. To catch up with the managed funds industry, particularly in the growing investment frenzy of the 1980s, the insurance sector began to respond with its own mergers and acquisitions. National Mutual merged with Temperance & General, establishing National Mutual Funds Management along the way. The Lend Lease property investment group acquired Mutual Life & Citizens (MLC), and the Dutch group ING acquired Mercantile Mutual.
The stockmarket boom also saw the launch of several big name investment management companies such as Portfolio Partners and Platinum, the launch of indexed equities investment funds, and the merger of several industry associations into the Investment & Financial Services Association, which was the forerunner of today's Financial Services Council.
The 1987 stockmarket crash brought this rapid development to a grinding halt, but it had a lasting positive effect - it popularised the value of quality investment management after it emerged that
Australia's Bankers Trust group had successfully navigated the crash through the "put" options strategy they had championed. Another 1987 managed funds milestone was Sealcorp launching
Australia's first investment platform. Eleven years later, in 1998, St.George Bank, now owned by Westpac, acquired Sealcorp, and in the following year Bankers Trust was acquired by Westpac.
Not to be outdone, the then recently privatised Commonwealth Bank in 2001 acquired the Colonial Mutual First State investment and insurance business and began assembling it into the group we today know as Colonial First State. Soon after, National Australia Bank acquired MLC, Westpac acquired Rothschild Funds Management, ANZ Bank launched its joint venture with ING and Merrill Lynch and Goldman Sachs acquired Potter Partners, all of which spurred some of the world's largest investment groups to enter the Australian market. The early 2000s would also see the launch of Australia's first exchange traded funds based on managed funds, first seen in Canada in 1989.
Since then Australia's managed funds sector has developed in tandem with the superannuation system to now oversee almost $4 trillion. It is the largest pool of investment capital the country has
Responsible entity reforms
In 1998, after a series of financial sector scandals, the government introduced the Managed Investments Act 1998, which restructured the managed funds industry to establish the single responsible entity (RE) regime that would make each scheme's operators fully responsible for them and accountable for all liabilities or losses. The Act took over from the prescribed dual-party investments system in which management of schemes was ambiguously shared by a fund manager and trustee.
The government's support for self-funded retirement, following the introduction of compulsory superannuation in 1992, reinforced the importance of the reforms. The need for the RE reforms was driven by a series of commercial property crashes at the end of the 1980s - in particular, the collapse of Estate Mortgage in 1990 and the Pyramid Building Society collapse in 1990, which led to massive losses for investors in retail investment funds.
|1840||JBWere stockbroking opens in Melbourne.|
|1846||The Independent Order of Odd Fellows, which would become IOOF, opens in Melbourne.|
|1849||Australian Mutual Provident Society (AMP) opens.|
|1869||National Mutual Life Association of Australasia (National Mutual) opens.|
|1928||JBWere & Son launches Australia's first equities investment trust.|
|1936||Australian Fixed Trust opens money market trusts in Sydney. JBWere & Son opens three similar trust.|
|1959||Hooker Investment Corporation launches Australian Land Trusts, Australia's first unit trust specialising in property.|
|1965||Australia's unit trust sector still managed only $250 million on behalf of around 100,00 people.|
|1975||US investment banks soon follow in 1975, launching equity oriented public managed funds.|
|1980||Hill Samuel opens in Australia.|
|1982||Dutch group ING acquires Mercantile Mutual.|
|1983||First league tables comparing performance of investment trusts appear. National Mutual merges with Temperance & General, then establishes National Mutual Funds Management.|
|1985||Hill Samuel obtains a banking licence and rebrands as Macquarie Bank.|
|1987||Stockmarket collapses, Sealcorp launches Australia's first investment platform.|
|1998||St George Bank acquires Sealcorp. Responsible entity reforms introduced.|
|2001||CommBank acquires Colonial Mutual First State. Exchange traded funds start in Australia.|
|2000s||Australia's managed funds market begins evolving in tandem with Australia's modernised superannuation system.|
|2008||Westpac acquires St George Bank.|
|2022||Australia's managed investment market reaches $3.5 trillion.|
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