Investment bonds back in focus as super changes loom
Tax changes could shift $180 billion out of super, and GDG is already seeing 58% inflow growth. Are investment bonds and managed accounts entering a new growth phase?
Generation Development Group (GDG) is positioning itself as a key player in Australia's wealth and retirement landscape.
Formerly known as Austock, GDG has expanded into a diversified financial platform across investment bonds, managed accounts and retirement longevity solutions.
Changing legislative and demographic trends are reshaping the advice landscape, opening opportunities for providers with innovative solutions.
Why investment bonds are quietly making a comeback
The constant tinkering with superannuation, including the recent Division 296 superannuation tax change, is prompting a reassessment of tax-effective wealth management strategies.
Within this context, investment bonds are undergoing a quiet renaissance, increasingly recognised as a tax-effective savings vehicle with flexibility for estate planning and intergenerational wealth transfer.
Are tax changes reshaping wealth strategies?
In our view the market growth opportunity appears to be significant as investment bonds move into the mainstream.
Industry estimates suggest more than $180 billion could flow out of the superannuation system in the coming years as a result of Division 296 tax changes.
Even a low-single digit re-allocation to investment bonds could represent a material uplift for a market that is estimated to be between $10-15 billion today.
This is before considering the several billion dollars contributed via non-concessional super contributions each year.
What the $180 billion super shift could unlock
Momentum is already building, with GDG recording accelerating gross inflows, up 58% over the last 12 months.
Potential changes to CGT discounts and negative gearing, if enacted, may further enhance the relative appeal of investment bonds.
Opportunities in managed accounts
Managed accounts are becoming a core mechanism for delivering wealth advice.
Recent estimates from Barrenjoey suggest managed accounts make up approximately 15% of total assets under advice in Australia, which is significantly below more mature markets, such as the UK, which may provide a runway for ongoing growth.
Why advisers are moving to managed accounts
GDG has established itself as one of the leading providers in managed accounts following the acquisition and integration of Evidentia and Lonsec Investment Management, with ~11% market share of a $256 billion sector by the end of 2025.
Inside the $256 billion market most investors overlook
The combination of two leading brands creates a scaled proposition to licensees and advisers across customised and ready-made solutions.
In a competitive market, leadership provides the scale to reinvest in product development, practice management, adviser engagement and data analytics.
While growth is unlikely to be linear, as the timing of flows can be lumpy, the current pipeline of opportunities provides support for a positive outlook over the short to medium term.
How GDG built an 11% share in a fast-growing sector
Tailwinds across GDG's product verticals continue to strengthen.
Over the medium term, we estimate that FUM growth could compound at 20-25% across investment bonds and managed accounts.
Could retirement products be the next big opportunity?
Retirement longevity solutions also remain a long-term opportunity.
The strategic partnership with BlackRock to develop new products has the potential to become a new growth driver, which we believe has little to no value ascribed to this opportunity yet.
For a capital-light business with strong unit economics, durable earnings growth and a highly motivated management team, we believe GDG can sustain multiple years of strong earnings growth.
On an FY27 P/E multiple of 25x, we believe the valuation has become more attractive relative to consensus EPS growth expectations of 23% over the next three years.
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