Fundamental - Issue 10

We are delighted to welcome you to the latest edition of Fundamental, the HW Funds quarterly newsletter, where we unpack the trends, challenges and opportunities shaping the investment funds sector today. 

We go to publication just over a week since the bringing down of the 2026-27 Federal Budget. It arrives at a challenging time for the Australian investment funds industry, with managers navigating subdued fundraising conditions, elevated interest rates and increasingly cautious investor sentiment. 

While the Budget introduces significant structural tax and regulatory reforms, its practical impact will be shaped by a broader market backdrop in which capital raising has become materially more difficult across retail, wholesale and institutional channels. For fund managers, trustees, and investors, the immediate question is whether the Budget helps unlock capital and productivity, or whether it adds another layer of friction to an already challenging fundraising landscape.

Higher interest rates have fundamentally altered investor behaviour over the past two years. With cash rates remaining elevated and fixed-income products once again delivering attractive yields, many investors have reduced allocations to higher-risk growth assets and venture strategies. This has created a more competitive fundraising environment for investment managers, particularly smaller and emerging ones. Investors are taking longer to commit capital and undertaking more extensive due diligence. Larger, established platforms with proven track records and liquidity may be better placed to absorb the challenges the current environment is producing – and query whether the corporate regulator, ASIC, may have a preference that more retail capital is placed though such channels. At the same time, softer equity market conditions and weaker transaction activity have constrained distributions from existing private equity and real asset portfolios, reducing the amount of recycled capital available for new commitments.

Against this backdrop, the 2026 Federal Budget introduces reforms that are likely to accelerate structural changes within the industry. The proposed replacement of the 50 per cent capital gains tax (CGT) discount with an inflation-indexation model and minimum CGT rate may reduce the attractiveness of direct investing and discretionary trust structures for many investors. As a result, professionally managed investment vehicles that can demonstrate stable income generation may become comparatively more attractive. This provides an opportunity for income focused products like private credit, ironically a sector which remains within ASIC’s focus. Our experts explore more in our article in this edition Federal Budget 2026-2027: key impacts and insights for managed funds.  

The Budget also increases regulatory oversight of managed investment schemes and fund governance, with ASIC receiving a funding boost to be deployed towards managed investment scheme enforcement. While intended to improve transparency and investor protection, these measures are likely to increase compliance costs for fund managers at a time when operating margins are already under pressure from slower fundraising and higher financing costs. 

Overall, the outlook for the Australian investment funds industry remains mixed. Elevated interest rates, weaker risk appetite and constrained liquidity continue to suppress capital raising activity. The coming year will be defined not just by policy change, but by how quickly participants can respond to it. Fund managers that can demonstrate resilience, income generation, operational scale and alignment with government-supported investment themes are likely to be best positioned as market conditions gradually stabilise.