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Reasons Why Australian Banks have Expanded Portfolio to Funds Under Management

Background

Australia has one of the strongest fund management sectors in the world. The growth of the sector is largely Reasons why Australian Banks have expanded portfolio to Funds under Managementunderpinned by retirement scheme known as superannuation that accounts for 70 percent of funds under management in Australia. Superannuation is an arrangement in which an employer contributes funds to an account on behalf of his or her employee. The funds are kept until the worker retires and are given back as retirement benefits. This scheme was introduced in 1992 by the government of Australia and is compulsory. Life Insurance Offices are also significant as it contributes about 12 percent of funds under management in Australia. Life Insurance Offices in Australia have been focusing more on funds management in the recent years but as indicated in the Global & Australian Forecasts (2013), the sector has not been able to achieve significant growth.

Over the last one decade, Australian major banks have expanded their portfolio by acquiring some Life Insurance Corporations and Superannuation Schemes. The take over started in 2000 when Commonwealth Bank acquired Peter Smedley-managed Colonial Group. After just one month, National Australian Bank (NAB) acquired Lend Lease’s MLC businesses.  Later, Westpac bought BT and Rothschild & Son’s while ANZ integrated with ING Asset Management. The big banks have continued with the trend until recently and the take over is likely to continue in the future.  Today, Henry (2013) explains that 11 major banks in Australia have taken control of more than 70 percent of funds under management market in Australia. In this regard, this paper seeks to explain why Australian banks have taken over some Life Insurance Corporations and Superannuation Schemes.

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