Australia’s fund management industry remains a tough nut to crack for foreign firms, new research suggests.

A study by Boston-based Cerulli Associates has found various barriers to entry still exist, many product related.

Not only do overseas buy-side firms need to have a best in class offering, strongly supported in other parts of the world.

Their products must be relevant to an asset class to which Australian super funds actually allocate money.

It’s also key, Cerulli has found, that their funds are attractive to gatekeepers - i.e financial advisors linked to superfunds including National Australia Bank (NAB) and Commonwealth Bank.

Managers who are looking to deal with likes of NAB or indeed the not-for-profit industry and corporate funds, face other challenges.

One is a tendency toward in-sourcing of investment management by these superfunds, given that they have the scale to run their own portfolios in a cost-effective way.

Another is increasing usage of exchange-traded funds.

With assets under management (AUM) of A$2.05trn (US$1.49trn) at the end of 2015, Australia’s superfunds have long been recognised as one of the world’s largest and most sophisticated pools of organised savings.

Indeed, the country is the world’s third-largest mutual fund domicile in terms of AUM (after the United States and Luxembourg), and home to one of the largest - and most rapidly growing - pools of organised retirement savings.

"Australia should present a bonanza to foreign asset management companies. It does not," said Thusitha de Silva, director at Cerulli.

“Costs come from salaries that are high relative to those that are paid in other countries in the Asian region, high personal and corporate taxes, and an industrial relations regime that makes it difficult to adjust staffing in response to changing commercial conditions,” de Silva added.

He went onto say that it is uncertain if the mooted Asia Region Funds Passport (ARFP), which could be an entry strategy vehicle for foreign asset managers, will ever take off in the country.

The perceived challenges include differences in tax law in Australia and tax law elsewhere in the region; differences between Australia-domiciled mutual funds, and UCITS and other funds that are widely distributed elsewhere in the region.

Respondents to Cerulli's study acknowledged that the regulatory regime in Australia is very highly regarded, and basically welcomes foreign asset managers.

One thing on which all observers agree on is that the market is highly competitive.

"Downward pressure on fees is relentless. Costs are high by regional standards," de Deliva adds. "Partly for this reason, and partly because of other challenging aspects of the marketplace, some managers take a fly-in-fly-out approach to the market. Others take the long view and invest heavily in offices and people."

In addition, the short-term and aggressive approach to investment of Asian retail investors differs from the approach of Australian investors.

“Just as for the Mainland-Hong Kong Mutual Recognition of Funds scheme and the ASEAN Collective Investment Scheme, the short to medium-term view of the ARFP is lukewarm at best,” de Silva adds.

“But just like the other passporting schemes, there is a more positive view on the long-term impact of the ARFP,” Cerulli concluded.