U.S. mutual fund companies and banks interested in crossing the Atlantic Ocean to expand their business might first want to listen to a cautionary tale from Barry Bateman, president of Fidelity International.
"It didn't work," he said of the company's first foray in France. Fidelity Investment's European sister company shuttered its Paris office in 1989 after two years of lagging sales and poor reception. The firm also scaled back operations in other European cities at the time.
"I think we went in with the wrong products and the wrong marketing stance. Maybe we needed the mistake in France to really get our act together," said Mr. Bateman, a 15-year Fidelity veteran.
Fidelity International is back on track with new products and new marketing strategies for each country, Mr. Bateman said in an interview in the company's offices here in the financial district.
The company has more than tripled its assets under management in four years, to $36.5 billion as of June 1997. By comparison, the U.S. mutual fund industry doubled its managed assets to $4.3 trillion during that period, according to the Investment Company Institute.
As U.S. fund companies reap the rewards of today's raging bull stock market, Fidelity International is firmly entrenched overseas and benefiting from U.S. companies' absence there, Mr. Bateman said.
"I think most of our American competitors-with one or two exceptions- have such a great domestic market that they naturally have not focused on the international market because it's been too good at home," he said. "That's been great for us."
Indeed, Fleet Financial Corp. is just beginning to investigate overseas markets, said Robert L. Ash, managing director in charge of mutual funds. While Mr. Bateman is right about getting a head start, Mr. Ash admits, Fleet isn't too far behind.
"Anyone not looking at opportunities for global distribution is not paying attention," Mr. Ash said. Mr. Ash created and implemented overseas distribution plans at AIG Asset Management Services, and later at Warren Management Consultants before he joined Fleet earlier this year.
While Fidelity is far ahead of Fleet in its overseas distribution plans, both Mr. Bateman and Mr. Ash face the challenge of penetrating new markets, they say.
Fidelity was able to turn its European fortunes around with a new tack- enter new markets first as an outsider, Mr. Bateman said. Only after investors in a new market accept Fidelity's name and product offerings will it attempt to compete head-to-head with European banks on their own turf.
"If you look when we first went into the U.K., we sold America, we sold Japan, we sold Southeast Asia," he said. "We didn't sell U.K."
Today, Fidelity International offers 179 investment funds throughout Europe and Asia. The funds are domiciled in Luxembourg, and include stocks, bonds, and cash investments.
Fidelity International began in 1969 as a subsidiary of FMR Corp., the Boston-based mutual fund holding company. The international arm was spun off 10 years later as a "sister" company to the Boston-based FMR. The Johnson family, which runs and owns a majority of Fidelity, retained a minority share of Fidelity International after the spinoff.
Fidelity International is based in Bermuda and its European base is London. It operates offices in 13 cities in Europe, Asia, and Australia.
The company holds the most assets in Britain, where its customers represent 27% of Fidelity International's managed assets. Its fastest- growing market is Germany, Mr. Bateman said, where young investors are looking for aggressive investments.
To keep the momentum rolling in Europe, Fidelity is using a different strategy in different countries.
In Germany, for example, the average investor is 35 years old.
"The younger investor is saying they want to do something slightly more exciting with their money than their parents did with theirs," Mr. Bateman said. "So who better to go to than the world's largest mutual fund company?"
And how do they peddle their products in Germany?
"Any way we legally can," Mr. Bateman said with a chuckle.
The company sells funds through newspaper ads with a toll-free telephone number to sell directly to investors, through investment advisers, and through telephone operations at the large German banks.
No German banks currently sell Fidelity funds through their branches. Fidelity is betting that will change in the next five years, Mr. Bateman said. European investment companies are facing the same hurdles U.S. fund companies faced 10 years ago as they tried to penetrate the banking channel, Mr. Bateman said.
"At the end of the day, German banks will have to decide if the risk of losing the client is greater than the risk of selling our funds through their branches," he said.
Fleet's Mr. Ash also acknowledges the lock banks have on the overseas markets. Any U.S. company that wants to sell funds in other countries, particularly in Asia, must team up with a foreign bank.
"In Europe and Asia, the trusted groups are the banks," Mr. Ash said. That bodes well for U.S. banks, he said. Foreign banks are likely to trust U.S. banks more than brokerage houses, which are not so prestigious overseas as in the United States, he said.
In the United Kingdom the average investor is 55 years old and is interested in different investments than the younger German investors, Mr. Bateman said.
Housing is the traditional means of investing for the British. They generally enter the stock market after their children move away from home. Then the parents buy a smaller house and invest the extra funds, Mr. Bateman said.
Since the U.K. is the only market where that phenomenon is common, Fidelity targets these older investors differently than in other markets, he said. And French investors, for example, favor money funds because French tax legislation favors such investments, he said.
"Our approach to the global mutual fund business is really exactly like producing cars," he said. "You put the other headlights on the front, move the steering wheel to the other side. We do that with mutual funds."
Among the necessary adjustments for funds are the currency conversions. French investors won't buy funds denominated in Spanish pesetas, for example, he said.
While the investing trends, currency, and language differ from country to country, each has an aging population that will soon begin saving for retirement, if they haven't already, Mr. Bateman said.
European countries are beginning to shift their traditional state- supported pension systems to defined-contribution savings plans, Mr. Bateman said. Each country's plan will be different, he said, so Fidelity is waiting for final legislation before it aggressively goes after that business, he said.
The U.K. is farther along than other European countries in its shift away from traditional defined benefits pension plans toward defined contribution retirement plans, he said. But all of Europe is still far behind the United States.
"I see a tremendous opportunity in DC (defined contribution) pensions in mainland Europe over the next 10 to 15 years, but it's going to be an opportunity that will be difficult for American mutual fund companies to exploit successfully," he said.
"I'm sure the European governments will design legislation to favor their domestic institutions rather than foreign institutions." French legislation, for example, looks like it will require retirement plans to include an insurance component from a French insurance company, he said.
No matter what challenges legislation may pose to an outsider like Fidelity International, Mr. Bateman is confident it learned from its mistakes and will succeed this time around.
"Maybe it was a good learning curve for us. What we've got now so far has stood the test of time very well."
