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Fidelity Japan's Leader Maps His Course

With $864 billion of assets under management, Fidelity Investments of Boston, the number one mutual fund company in the United States, commands an eight percent market share of the $7.059 trillion total mutual fund assets in the U.S., according to the Investment Company Institute.

These are figures to be proud of, said Roger Servison, managing director and executive vice president at Fidelity and president of Fidelity Brokerage Services Japan.

But Fidelity lacks such dominance and probably never will command anything like it in Japan, Servison said. Instead, Fidelity Japan's goal is to build its current $13.8 billion in assets, or 1.5 percent market share, to $50 billion, a two percent market share, by 2005, Servison said.

Servison, who joined Fidelity nearly 25 years ago as vice president of marketing, took over as head of the company's efforts in Japan five years ago. Besides overseeing Fidelity's business in Japan, he is responsible for developing new business and marketing strategies and policies for the entire company.

In his marketing position, Servison led Fidelity's direct marketing strategy, which has enabled Fidelity to become the largest direct marketer of mutual funds in the U.S., according to the company. In 1987, Servison became senior vice president of Fidelity's new business development group and expanded Fidelity's business into life insurance, consumer banking and asset allocation.

Fidelity's current goal - of building its market share by half a percentage in Japan - may sound insignificant in the world's second-largest asset management marketplace, particularly for a giant like Fidelity, Servison said. But Japan is a challenging market, dominated by Nomura, Nikko and Daiwa which command 68 percent of it, Servison said. To increase Fidelity's market share even by half a percent in five years will be a major challenge, Servison said.

Fidelity Japan's chief also said he is unfazed by recent media attention to the fact that Fidelity's $4 billion Japan Open Fund, which had been, for most of 1999, Japan's biggest mutual fund, was recently displaced by two newcomers to the market. The Nomura Japan Equity Strategy Fund reached $10.5 billion in assets under management and Nikko's Japan Open Fund reached $5.5 billion in assets under management in February, according to Morningstar, the fund tracking and rating agency in Chicago.

It is more important to consider Fidelity's long-term strategy for competing with the giants in Japan than to scrutinize the size of a single Fidelity mutual fund versus another fund, Servison said.

Fidelity startled competitors in 1995 with two major steps it took to break into the Japanese market, Servison said. But, both moves have been successful, he said.

The first strategy was to enter the Japanese market alone, eschewing joint ventures, he said. The second was to offer a lineup of 18 equity funds in a country known for conservative investors who favored money market accounts or bonds.

Now that Japanese banks and brokerages are becoming more familiar with asset management, and no longer feel that they need the investment knowledge of U.S. firms, many joint ventures that have been formed are falling apart, Servison said.

Cerulli Associates, the mutual fund research firm in Boston, recently said that two-thirds of all cross-border fund management joint ventures in Japan that had been formed between 1979 and 1995 have been dissolved, Servison said. Cerulli predicts most of those forged in 1998 and 1999 will also founder within three years, he said.

"Foreign firms and cross-border joint ventures will see their market share of the overall fund management industry fall from its current level of 16 percent to 14 by 2005," the Cerulli report said. "The newly created IBJ-Fuji-DKB bank and the Sumitomo group will each represent 17 percent of the marketplace by 2005, eclipsing foreign fund management operations. This reverses a decade-long trend that has seen foreigners steadily seize greater control of the Japanese fund management industry."

In addition to going solo into Japan, a key part of Fidelity's strategy has been distributing through several channels including banks, brokerages and financial planners, as well as directly, Servison said.

"We wanted to form partnerships with as many distributors as possible to gain recognition for our products," he said.

This has paid off, he said. Banks, which began selling mutual funds in late 1998, have been particularly productive," he said.

The other step Fidelity took in Japan that surprised some competitors was to offer equity funds, Servison said. But the performance of those funds in 1999 was critical to Fidelity Japan's growth last year, said Servison. Fidelity Japan's portfolio managers were able to achieve this growth because they know the market, he said. Fidelity was intent on delivering solid performance because the Fidelity name was new to Japan and the company wanted to establish itself among Japanese investors, he said.

Three of Fidelity Japan's equity funds did very well. The Fidelity Japan Small Company Fund returned 198.9 percent in 1999, the Fidelity Japan Open Fund was up 128.99 percent and the Fidelity Japan Growth Fund rose 121.28 percent, Servison said.

Fidelity has been promoting this performance in its print and television advertisements, Servison said. Fidelity hopes these returns will not only boost its own sales but also increase Japanese investors' understanding of investments, he said.

Looking back on Fidelity's entry into the mutual fund business in Japan fives years ago, Servison said there is not much he would do differently. He only wishes that he had realized the power of advertising, which Fidelity Japan began using only a year ago.

In addition to stepping up advertising, Fidelity plans to introduce 401(k) plans next year and hopes to help steer as much of the $950 billion in postal savings, which are beginning to reach maturity, into mutual funds, Servison said.

It is all part of the Japanese challenge that Servison has come to enjoy.

"Here is this huge market for personal financial services, and those savings are completely under-invested," Servison said.