American Century Looks Abroad
December 14, 2009
American Century Investments is a brand-new player in the international wealth management business-and that novelty could be an ace up its sleeve, according to the company's top executive.
"That's because the Kansas City, Mo.-based mutual fund firm is a fresh alternative for institutional investors who are "disenchanted with their current providers," said Jonathan Thomas, American Century's president and chief executive officer. "For the most part, we're nobody's current provider."
The company has created a distribution network in Europe, the Middle East and Asia over the past 14 months, establishing sales offices in London and Hong Kong. Overseas investors account for just 2% of American Century's assets under management so far, and it aims to increase that to 10% within five years, Thomas said.
The company wants to diversify geographically to smooth out its earnings profile, he said. Its international offerings are for both retail and institutional investors.
American Century is one of the last fund companies to look overseas. The company was founded in 1958, but it wasn't until October 2008 that it opened its first overseas sales office, in London. In May, it added an office in Hong Kong.
Planting its flag abroad is not America Century's only recent success. It's reversed a plunge in its assets as well. Around this time last year, assets in its long-term funds had declined by more than 30% for the year, to $50 billion. Long-term assets through Oct. 31, 2009, however, are up about 18% and now stand at about $59 billion, according to Morningstar.
In addition to the power of being a new brand to many institutional investors, American Century sees overseas growth potential in the fact that many markets outside the United States are relatively underserved, Thomas said. He singled out China as an appealing growth market. "There a real sense of growth and a massive population getting a taste of discretionary income for the first time in their life," he said.
In the Middle East, sovereign wealth funds beckon as sources of new assets, he said. For its part, the European market is "more of a takeaway story than new asset story," Thomas said.
In the United States, meanwhile, the company is counting on a commitment to its intermediary sales staff to drive growth. It added 17 positions in late 2007 and early 2008, increasing by 22% the staff on its internal sales desk and in the financial-adviser, defined-contribution-investment-only and 529-plan channels.
The intermediary staff remains that size, and Thomas credits the investment for strong net flows: According to American Century's own calculations, the company was in the 17th percentile among the top 100 fund firms for the 10 months through October.
On the product front, American Century in October announced the launch of its collective investment trust program. Its program consists of 12 CITs, which are targeted at defined contribution customers.
CITs, also known as commingled or collective funds, deliver the same benefits as mutual funds. But they cost less because they are subject to bank regulations rather than those laid out under the Investment Company Act of 1940. Thomas described American Century's entry into the CIT business as coming at the behest of clients and said the company does not necessarily see CITs as the next hot product.
Burton Greenwald, president of B.J. Greenwald Associates in Philadelphia, said CITs can be expected to gain momentum, but it's unclear how much. "It's premature to say whether it will be a major trend," he said. The product category has begun to catch on because of increasing pressure for lower fees within retirement programs, and scrutiny from lawmakers and regulators, Greenwald said.
"They are part of a broader trend, with the expectation that the fee component will become a bigger factor in the choices particularly of the larger plans," he said.
Thomas described American Century's entry into the space as "all about providing products to our clients in a way that meets their needs." He added that he doesn't see a major shift toward CITs at this point: "There is not a tsunami."
As it attempts to drum up new business, American Century can point to plaudits for its performance. In April, Lipper named it the "Best Large Mutual Fund Company of 2009," based on its consistent risk-adjusted returns over the three years ended Dec. 31, 2008.
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