Minority Investments to Top $3 Trillion by 2007
April 7, 2003
Ethnic marketing has replaced equity underwriting, private equity investing and corporate lending as the hot business line in U.S. commercial banking. With assets down at mutual fund companies and the investment holdings of Hispanics, Asian-Americans and African-Americans expected to grow to $3.2 trillion by 2007 from $1.9 trillion today, it might pay the mutual fund industry to take note of minority investors.
Bank of America Corp. has taken a 25% stake in Mexico's third-biggest bank and simultaneously unveiled a Hispanic initiative. Citigroup, which already owns a large Mexican bank and has just bought a San Francisco thrift, recently celebrated a development project in a heavily Hispanic section of Oakland. Wells Fargo & Co. recently appointed its first director of diverse growth segments, and earlier this year, introduced Chinese-language features on 2,600 automated teller machines in 23 states.
A few fund companies, including Strong and Nuveen, have gone to the trouble of translating prospectuses and marketing materials. But only a few have made a full foray into multicultural waters, with Merrill Lynch and State Street Research & Management Co. two of the most recent (see MFMN 08/09/99, 08/05/02).
Fund companies such as these apparently are hoping to profit from what is expected to be the next boom - a burgeoning class of ethnically diverse consumers expected to nearly double their spending on bank and investment products by more than half in the next four years. Hispanics are projected to increase their investment holdings 94% to $1.2 trillion, Asian-Americans by 77% to $1 trillion and African-Americans by 46%, also to an estimated $1 trillion.
Figures provided by State Street Research of Boston reveal that between 1990 and 1998, the purchasing power of Hispanic-Americans increased 67%. That purchasing power is expected to double again within 10 years (see MFMN 2/28/00).
As interest by banks in fast-growing ethnic markets, particularly those in the West and Southeast, has exploded over the past two years, they have created entire "emerging market" or "diverse marketing" departments. They have also increased their local and national marketing and branding efforts - posting Spanish billboards, buying spots on African-American radio stations, and building floats for Chinese New Year parades.
Some banks are even embracing a cross-border strategy, which could also work for fund companies that have expanded overseas, such as ING in China (see MFMN 12/31/02), and PIMCO and Vanguard in Japan (MFMN 4/08/02, 1/18/01).
Likewise, demographics unveiled in the 2000 census are driving investment companies' interest in ethnic marketing as they search for new areas of growth.
Asians make up 4% of the U.S. population, and that percentage is expected to grow to 6.5% by 2025, according to the Census Bureau. The Hispanic percentage is expected to hit 18% by 2025.
And Bank of America and Wells Fargo identify African-Americans, whose rate of homeownership rose by 89% between 1993 and 2000, as one of their target consumer segments.
The potential for these ethnic groups is so high that BofA is calling them its best source for future growth.
"We think 80% of the growth in our retail markets will be driven" by those markets, Kenneth Lewis, chairman and chief executive, said.
"These are becoming not only very sizable groups in our markets, but they also are exercising quite a bit of economic and social presence," said Georgette "Gigi" Dixon, a senior vice president and the director of emerging markets in Wachovia's corporate marketing division.
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