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U.S. Funds Scramble to Compete in Europe

Seeking to gain a footing in a mutual fund marketplace which offers opportunities for growth that the nearly saturated U.S. market does not, U.S. firms are opening fund supermarkets and introducing exchange-traded funds in Europe.

The growth of the European fund industry has produced a flurry of U.S.-European partnerships and has spawned the development of new products and services, according to U.S. fund executives.

If U.S. funds want to be part of the action, they need to act soon because European markets are maturing rapidly, said Beth Murray, senior director of third-party distribution for American Express Bank Ltd. of New York.

"I think that it has definitely changed ... it has certainly quickly advanced but there is still potential and it's not as saturated as the U.S. market," Murray said.

Several factors have spurred growth in the European fund market. The bond, traditionally Europeans' investment of choice, has suffered from poor performance as a result of lower interest rates. That coupled with a greater choice of investment options has caused many Europeans to invest in other products that offer better returns, Murray said. And there is a greater awareness among European investors that state-sponsored retirement plans do not provide sufficient savings for retirement and that private investment is necessary, she said.

In the past five years, assets in U.S. firms' funds registered in Luxembourg and Dublin, Ireland have grown 462 percent and 773 percent respectively, according to figures released by Fitzrovia International of London, a research and consulting firm that tracks the European fund industry. Last year alone, U.S. assets invested through Luxembourg increased 109 percent from the previous year and U.S. funds registered in Dublin rose 34.9 percent. Most U.S. firms register in either country because that enables them to distribute throughout Europe, said Ed Moisson, a company spokesperson.

American Express Bank Ltd. has taken part in the European growth, quadrupling its assets to nearly $2 billion last year, Murray said. Partnerships with third-party intermediaries have helped the company get a foothold in Europe, she said. In Italy, one of the company's stronger markets, the firm has established partnerships with 59 different intermediaries, she said. Three new funds and the company's decision to allow Euro-denominated investments in all 22 of the firm's funds also helped boost sales, she said.

The company plans to introduce two more European funds later this year and is currently negotiating to offer funds through a U.K. supermarket, said Lee Middleton, a spokesperson for American Express Bank Ltd.

Frank Russell Company of Tacoma, Wash. is another U.S. firm that has actively developed new partnerships and products in the European market. At the end of 1999, the firm offered 12 different mutual funds in Europe and had nearly US $3.6 billion in European assets under mangement, according to Fitzrovia figures.

The firm has established two strategic alliances this year with firms in Italy and France to develop new products and expand distribution. Earlier this month, Russell formed a partnership with French supermarket, Sicavonline of Paris, to sell funds online. The agreement will allow Russell to include 11 of its funds on Sicavonline's site, which offers 150 funds, the company announced.

Earlier this year, Russell signed an agreement with ARCA SGR Spa, an asset manager of Florence, Italy. The deal will allow Russell to distribute its funds through ARCA's network of 90 national banks reaching some five million clients.

While the fund industry in Europe is maturing rapidly, U.S. firms are scrambling to introduce new products like fund supermarkets in Europe. Charles Schwab & Co. of San Francisco and Fidelity Investments, for example are racing to launch fund supermarkets in the U.K. and expect to do so later this year. (MFMN 2/21/00) Exchange-traded funds are another product U.S. firms are considering as a possible vehicle into European markets, said Deborah Fuhr, vice president and global head of marketing for Morgan Stanley & Co. International of London. The first three exchange-traded funds were introduced in Europe in early April and there are at least a dozen more that will be introduced in Germany and the U.K. in the coming months, she said.

Mercury Asset Management, a division of Merrill Lynch & Co's Fund Asset Management L.P. of Princeton, N.J., is expected to introduce an exchange-traded fund in the U.K. next month and has already introduced one in Germany, Fuhr said. The U.S.-based Nasdaq Stock Market is also interested in offering shares of its Nasdaq 100 index in the U.K., but is being delayed because of legal issues, she said.

Morningstar of Chicago also said that its announcement late last month that it will begin tracking the fund industry in the U.K., Germany, France, Italy and Holland is an indicator of a maturing European market. While Morningstar joins Lipper of Summit N.J. and Standard & Poor's of New York, which are already active in Europe, Morningstar's ratings and data will be geared toward the individual investor, said Kevin McDevitt, business manager for Morningstar's international division. The growth of the fund industry in Europe due to investors' growing responsibility for retirement prompted the company to launch its European operations, he said.