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Conference Coverage


MIAMI - Consumer demand will force banks to release their stranglehold on mutual fund distribution in Europe, and a pending retirement crisis in Japan will force that country's government to enact tax legislation favorable to mutual fund investing.

These events in Europe and Japan were just two of several global opportunities that speakers spelled out for mutual fund executives attending the National Investment Company Service Association's annual operations conference here last week.

As the appetite for mutual fund investing levels off in the U.S., fund companies have no choice but to look for opportunities overseas, said Roger Servison, managing director of Fidelity Investments of Boston. The non-U.S. mutual fund market could be as much as $6 trillion in assets, Servison said.

The largest driver of international growth will be "the retirement gap," Servison said.

"Something has to be done about the promises these governments have made to their citizens," he said. "Many of these markets are two to three times under-funded. This will become a political force to be reckoned with. It cannot be ignored."

In the United States, mutual fund assets are equal to 57 percent of gross domestic product, Servison said. By comparison, Japan's mutual fund assets only represent eight percent of GDP. The U.K.'s mutual fund assets represent 17 percent of GDP, he said. (See chart)

If mutual fund assets in Japan rose to the same proportion of assets to GDP as exists in the U.S., there would be $2.1 trillion in mutual fund assets, Servison said. By the same calculations, the Germans would be the second-largest non-U.S. mutual fund shareholders, with $1.2 trillion in mutual fund holdings, he said. The French would follow, with $837 billion in fund assets, he said.

Servison also projected the age 65-plus population growth worldwide through 2050. The percent of the population age 65 or older will outpace the U.S. in every major market, he said. Thirty-five percent of the Italian population will be at least 65 years old by 2050. The countries with the next largest populations by percentage over 65, in descending order will be, Germany, Japan, France, the U.K., Canada and the U.S., Servison said.

These growing numbers of senior citizens will require mutual funds for their retirement savings and fund companies should take note, he said.

U.S. fund companies will still have a huge hurdle to overcome in Japan, where the word investments translates to the word gambling, said Thomas J. Karol, the U.S. coordinator for the global investment management services group at Deloitte & Touche of New York. Over the past 10 years, Japanese investors have not changed their investing preference for low-yielding savings accounts with the Ministry of Posts and Telecommunications, known as the post office.

However, many of these accounts, opened 10 years ago at rates ranging from five percent to seven percent, are about to mature, Karol said. And, currently, since the Ministry of Posts and Telecommunications is offering savings accounts yielding a paltry 0.3 percent, the maturing of these accounts will present a prime opportunity for fund companies to try to convert these investors to funds, he said.

Furthermore, while the Japanese traditionally have revered the old and the younger generations have housed their elderly parents, this is no longer the norm, Karol said. Today's aging Japanese do not expect their children to take care of them when they become incapacitated. And, Japan does not have the alternative network of nursing homes that the U.S. has, Karol said. The Japanese therefore will undoubtedly begin to see the importance of retirement savings, he said.

"There is a phenomenal concern in Japan over retirement and health care," Karol said. "Most Japanese elderly do not think they can live comfortably on pension benefits and do not think that their children will provide assistance. The elderly are now thinking they will have to rely on themselves."

Karol also called attention to problems with the so-called Big Bang in Japan. A mutual fund company hoping to do business in Japan may not want to go after the 401(k) market because 401(k) accounts are capped at the equivalent of approximately $8,000 annually, he said. And, Japan does not have favorable tax incentives for saving, he said.

Prospects look brighter and far less complicated in Europe, speakers said. (See related story page 17.)

Although banks currently dominate mutual fund production and distribution in Europe, that is about to change, said Magnus Spence, director of Sector Analysis, a mutual fund research firm in London.