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Why Go Offshore?

NEW YORK - Speakers at the Offshore Fund Forum outlined substantial opportunities abroad and said that the mutual fund industry cannot ignore the overseas market if it wants to continue to grow.

The U.S., with only five percent of the world's population, currently controls 65 percent of the world's fund assets. But that will decrease to only 33 percent by 2008, said Deborah Smith, a vice president with State Street Bank & Trust Company of Boston. Smith and other speakers said the greatest opportunities are in Europe and Japan.

European fund assets will increase by more than 20 percent annually over the next five years and European pension assets will double from $2.25 trillion to $4.5 trillion during this time, Smith said.

With an impending $2 trillion retirement gap in Europe, it will soon be possible to persuade European investors to move their investments out of money market funds, where more than 40 percent of their money is now, into equity funds delivering better returns, Smith said.

Japan, too, is about to face a pension crisis that can largely be averted if Japanese investors can be persuaded to move their savings out of postal savings accounts into mutual funds, said Steven Olson, chief operating officer and chief investment officer of Nomura IBJ Global Investment Advisors of New York.

Japan does not have adequate mutual fund inventory, he said. "Japanese institutions need new products and innovations, and Japanese investors are looking for risk management, performance evaluation, qualitative information and global diversification," Olson said.

The Japanese have $11 trillion in savings but only $376 billion of that is invested in mutual funds, Smith said. Over the next four years, mutual fund holdings in Japan will grow to $1.2 trillion, she said.