JPMorgan Seeks to Reap EU Supermarket Growth
February 18, 2002
When it comes to opening mutual fund supermarkets in Europe, fund complexes have it decidedly rough.
Whereas in the U.S. there is one regulating body, one tax code and one national language, firms in Europe must contend with 42 regulators, 19 tax codes and seven official languages. Compounding the problem is the fact that European supermarket technology is light years behind that in the U.S.
To help address those problems, JPMorgan has increased its ownership of a U.K. service company called FundsHub for an undisclosed sum. The firm develops supermarket platforms that, it says, make it easier for complexes to tailor their businesses to fit the hodge-podge of regulations and languages scattered across Europe.
The product, FundsHub says, is the first of its kind on the continent, and will now be branded under the JPMorgan Investor Services name.
"What we're trying to pioneer is the ability to have the same system right across Europe," said Mark Tennant, a senior VP at JPMorgan Investor Services.
JPMorgan had owned 15% of the company until this month, when it increased its stake to 85%. In doing so, the firm is adding to its fund custody and administrative operations as it takes those services into new markets in Spain, Italy, Germany and France.
JPMorgan Investor Services is the largest provider of custodian and trust services in the U.K., with 40% of that country's market share, Tennant said. In addition, the firm is the largest third-party custodian in Luxembourg and it controls more than 20% of the Dublin market, he said.
Sowing Future Flows
By increasing its stake in FundsHub, the firm also hopes to capitalize on a glut of new supermarkets that are expected to sprout up across the continent.
The London office of Cerulli Associates, a financial research firm, says the European supermarket business could reap as much as 25% of net new flows in Europe by 2005. By contrast, the firm said European fund supermarkets currently represent about 1% of net new flows. And, David Moffat, the marketing director at FundsHub, estimates that between 100 to 300 supermarkets will develop on the continent by 2004.
Since it was founded in April 2000, FundsHub has developed a handful of new supermarket platforms, including Charcoal Online, its first U.K customer and Gothaer, a well-known financial services company in Germany. Tennant said building new fund supermarkets is such a gargantuan task, the firm plans to take on only four or five jobs a year. "Frankly, I don't think anybody can cope with more than that," he said.
But by using a computer language called Java, the firm says it has both reduced the time it takes to adapt new platforms and streamlined the systems in a way that makes them cheaper to manage. And as Europe continues to build new supermarket platforms, Thomas Marsh, a senior analyst in Cerulli's London office, says many complexes could opt to use outsourced services such as FundsHub rather than develop their own systems in-house.
"People are shaking their heads and saying, Wow, this is a lot harder than we thought,' Marsh said. "Basically, when you look at what FundsHub brings to the U.K. market, they have done the heavy lifting for someone who wants to access the market."
But the company may not be regarded as an innovator for long. Tennant said the shelf life of new platform technology is only about six months and the firm will have to innovate new ways to build the platforms while European firms work to chisel its market share.
"We have to be ready for something to arrive in the next six months," he said. "Three or four years from now, all software will do this."