After a relatively low-keyed beginning, the 80-year-old managed investment fund industry in Australia has enjoyed breathtaking growth in recent years - propelled by compulsory and voluntary superannuation contributions.
Today, Australian managed investment funds have almost $1.4 trillion in assets including a large proportion of assets under management in superannuation funds. (This Australian Bureau of Statistics figure does not include, for instance, assets in self-managed super funds and many other smaller super funds - unless their assets are, in turn, invested in managed funds.)
The rapid ageing of the Australian population and a growing recognition of the need to save for an adequate standard of living in retirement have been reflected in the growth of our funds management industry.
A key driver in the long-time growth of managed funds - indeed for their initial establishment - has been their role for investors with at first limited means to gain exposure to a widely diversified investment portfolio. And as the personal wealth of individual investors has grown, managed funds have responded to their evolving needs.
One of the fascinating characteristic of funds management is how different types of funds - primarily local share, international share, bond, property, cash and balanced or diversified funds - have been popular at different times and to different generations.
Although Australians first invested in a managed investment fund just four years after the Americans had founded their first managed fund, the popularity of managed funds in Australia did not takeoff until the 1950s.
Join us on a journey through the history of managed investment funds. It will be a remarkable ride.
Timeline to change
1860s-1870s: Managed funds become a favoured means for some small investors in the UK to invest in portfolios that included the bonds of foreign government, reports 'Fifty Years of Managed Funds in Australia' (see footnote).1924: America's first mutual fund or managed investment, The Massachusetts Investors Trust, opens for business, and has 200 investors within a year. It survives today as MFS Investment Management. However, many of the first managed funds in the US failed in the share market crash of 1929.
1928: Melbourne-based stockbroker JB Were & Son founds the first Australian investment company.
1929: The Vanguard® Wellington Fund, then named the Industrial and Power Securities Co, is launched shortly before the 1929 crash.
1931: "A new wave" of managed investment funds begins to emerge in the UK, records 'Fifty Years of Managed Funds in Australia'.
1936: Inspired by the newest UK managed funds, Australian Hugh Walton launches the First Australian Unit Trust. Its early advertisements managed funds as a "modern method of scientific investment".
1945: When World War II ended, Australian managed funds had just 1.5 million Australian pounds under management. The initial growth of the funds management industry, interrupted by the stock market crash of 1929 and a world war, had not been a stunning success.
1946-1960: Australian managed funds enjoy their first burst of high growth.
1958: The Australian banks begin their highly rewarding involvement in funds management.
1959: The Hooker Investment Corporation launches Australia's first managed property fund.
1960: Australian managed funds have 50 million pounds under management and 80,000 investors. True success has arrived.
1975: The Vanguard Group is founded in the US under the leadership of John C. Bogle.
1976: Vanguard in the US launches the world's first index fund for retail investors, the Vanguard® 500 Index Fund, based on the S&P 500 share market index. Today, this is the world's largest managed fund, of any type.
1978: Funds under management in Australian managed funds exceed $488 million.
1978: Australia's first industry super fund - the Labour Union Co-Operative Retirement Fund (LUCRF) - is established. Today, industry super funds, which are classified as managed funds in their own right, hold more than $200 billion in total of members' savings.
1980: Australia's first cash management trust is launched.
Early 1980s: Managed funds are advertised for the first time on Australian television, underlining their marketing to a wide audience of potential retail investors.
1986: Award super is introduced, providing tremendous growth for managed investment funds. Super coverage rapidly grows from just 40%, and the industry super sector commences a time of rapid expansion.
1987: Imputation credits for corporate tax already paid are introduced, ending the double taxation of company profits. This provides a great boost for managed share funds.
1992: Superannuation guarantee contributions are introduced, taking super to most employees. The birth of the compulsory superannuation leads to unprecedented growth for managed funds.
1996: Vanguard opens its first Australian office and offers index funds to wholesale investors.
1998: Vanguard launches the Vanguard® Investor Index Funds to Australian retail investors, and the Vanguard® Pooled Superannuation Trusts for wholesale investors.
1998: The Managed Investment Act (MIA) revamps the laws for the establishment and conduct of retail managed funds.
2002: The Financial Services Reform (FSR) legislation imposes a single licensing regime for the sale and advice involving financial products.
2002: The refunding to investors of excess imputation or franking credits provides another significant boost for lower-income direct share holders and holders of units in managed share and balanced funds - including members of concessionally taxed super funds.
2007: The simplified super arrives with the headline feature of tax-free retirement benefits for those over 60. And superannuation pensions are simplified. In short, these measures make super a much more attractive proposition and lead to a further acceleration in its growth, and for managed funds in general.
The future of managed funds
The bear market of 2008 has shown once again the benefit of being invested in widely diversified managed funds. The use of managed funds as a means to gain wide diversification for minimal costs will assure their strong future.
Sources include: 'Fifty years of managed funds in Australia', a preliminary report by Bernard Mees, Monica Wehner and Pamela Harahan published in 2005 by the Centre for Corporate Law and Securities Regulation for the Investment and Financial Services Association.
