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Globalization Called Chief Industry Challenge


MIAMI - Globalization is the most critical issue facing the mutual fund industry, according to industry executives gathered here last week. Globalization presents both enormous opportunities and challenges for the U.S. mutual fund industry, according to executives who spoke at the National Investment Company Service Association's operations conference.

"Expanded products and services in the global market is an enormous opportunity and the U.S. mutual fund industry is best equipped to satisfy the needs outside of the U.S.," said Jay Hooley, executive vice president of collective funds services at State Street Corporation of Boston. "Statistically, if you look four years ago at the worldwide mutual fund market and track the U.S. against that, you'd see that in excess of 80 percent of worldwide assets were in the U.S. That number is down to 60 [percent]. And I think that if you look at growth rates... growth outside the U.S., clearly, is exceeding that within the U.S. So the punch line is - the U.S. mutual fund industry has demonstrated a nimbleness and an ability to reinvent itself and be creative in the market. And I think it has the flexible infrastructure in order to continue to do what it's always done, at an accelerated rate, in other markets."

One reason U.S. companies have that flexibility and are well-equipped to enter these growing markets is they have the use of technology, according to Alan Halfenger, senior vice president at Alliance Fund Services of New York.

"If you're going to look at global distribution channels, years ago, we had no way of really communicating," said Halfenger. "Sure, there were telephones and fax machines and things like that, but today, with the Internet and with all the means we have to communicate back and forth, we have an office in Singapore, an office in Luxembourg, an office in New Jersey, an office in Texas, and we communicate daily without a problem... technology is going to help us stay focused globally. Definitely, the global markets are where we see things going."

Not only might the U.S. take advantage of growing foreign markets abroad, but companies in those growing markets may themselves enter the U.S., according to Steven Buller, partner at Ernst & Young of New York.

"I think the issue [regarding globalization] is not only how fund groups have sought out multiple channels, but I think the big increase we're seeing and are going to see is an increase in foreign players in the U.S. marketplace," said Buller. "And it's not just the acquisitions of investment companies, but also, as the SEC continues to liberalize access to domestic markets, we're going to see, at some point in time, complete transparency of foreign firms in the U.S. marketplace."

The reason globalization is seen as an opportunity yet to happen is that there are enormous challenges to be met before its full potential can be realized, speakers said.

"If you believe the construct that we're becoming increasingly global in our businesses and how we view our businesses, there is a lot of work to be done outside the U.S.," said Hooley. "I think it's happening bit by bit as markets come to scale... you see service providers starting to descend, more durable technology being put in place and the next phase of that is... the industry trying to get together and try to figure out... how they can create more efficient connections between fund-related companies. All that has to happen in those markets and they all have to be connected up through global straight-through-processing, which is an enormous challenge, but absolutely the right thing that we all should be focused on."

One reason creating efficiencies and crossing markets is such an obstacle is the lack of standardization abroad, according to Halfenger.

"Offshore, we're back [where the U.S. was] 15 years ago," he said. "There is nobody talking, no [regulatory and operational] standardization. This is the new frontier, and every place you go... you have to adjust to their mentality and their way of thinking. We have to find the mechanism... that will be used throughout the world."

When and how that standardization will be achieved is not clear, but it does not appear that it will be soon.