Despite a “modest” performance by funds managers this year, the industry expects strong growth over the next 12 months, according to a survey released by the Investment and Financial Services Association (IFSA).

Its Key Industry Statistics Survey 2002 released last week compiles information from 35 funds managers who together handle around $460 billion of assets and represent more than 70% of funds under management in Australia.

The survey found that assets under management grew overall by 4% over the past year, much less than the 8.5% growth reported in 2001. However, the survey found that funds managers’ expectations for assets growth for next year are stronger.

Surprisingly, it’s not the big managers but the small and medium-sized operators that accounted for the highest assets under management growth.

Medium-sized managers (with assets under management of $5 billion to $20 billion) grew by 9.1% and small managers (with assets under management less than $5 billion) grew by 8.8%.

But large managers – those with $20 billion or more under management – showed a less impressive performance, only growing by 2.7%.

In terms of profits and revenues, 25% of managers reported a fall, but again this is expected to bounce back, with 50% of the managers predicting profit growth of more than 10% for the next 12 months.

The respondents see existing customers to the industry, together with investment market performance, as key sources of revenue growth. Around 80% of managers ranked these two factors as “very important” to growth next year.

And new products are on the way, with 74% of funds managers looking to offer products like hedge funds that have a higher risk/return profile.

The survey found that “customer management” and “people management” were the two most significant industry trends impacting on funds managers’ businesses and are expected to rise in importance next year.

The survey also found that IT investment will play the largest part in funds managers’ capital investment.

The impact of regulation has also been positive. According to the survey, the Managed Investments Act (MIA) and capital gains tax reform have had a net positive impact on the industry’s global competitiveness. However, one reform that has drained the budget of funds managers is the FSRA. Most reported that as a result of costs arising from making the transition to the new FRSA regime, compliance costs will rise at least 5% over the next year.