It looks as if the days of easy money for mutual fund companies are finally over.
An unsteady stock market and increased competition are forcing fund executives to fight harder for assets than they have in years, observers say.
"Right now we're coming off a decade of assets coming in over the transom of most companies," said Robert L. Ash, chief executive of the mutual fund arm of FleetBoston Financial Corp.
The fund companies that will prosper, he said, are those that invest resources to broaden their product lines and expand geographically.
As the Investment Company Institute's annual conference opens today in Washington, mutual fund executives were expected to be considering how to turn the changes wrought by globalization and technology to their competitive advantage.
U.S. asset managers have sought money overseas in various ways. Last month, Chase Manhattan Corp.'s global custody unit announced a $20 million joint venture with Investia, a London-based e-commerce company, to create mutual fund supermarkets for European banks, insurers, and brokerages. New York-based Alliance Capital Management recently opened an office in Munich as a base to sell its mutual funds in Germany.
At the same time, U.S. firms face competition from foreign companies such as the Netherlands' ING Group NV, Germany's Allianz AG, and Italy's UniCredito Italiano Group, all of which have recently announced plans to buy U.S. asset management companies.
Mr. Ash, who helped set the agenda for the institute's conference, said fund companies are both blessed and cursed by the ability to market a wider range of products to a global marketplace.
"The markets overseas are becoming very big," especially with the privatization of pension funds, Mr. Ash said. The challenge, he said, is to tap in to the overseas markets intelligently.
"Most mutual fund companies are naïve - they get into Europe and Asia by themselves," when they should be looking for local partners, he said.
FleetBoston, for example, has deals with ING and United Overseas Bank Group of Singapore that give it overseas distribution outlets for its Galaxy Funds. A unit of United Overseas will subadvise the forthcoming Galaxy Pan Asia Fund.
Domestically fund companies face demand for a broader array of products, such as exchange-traded funds, Mr. Ash said, and customers want access to products and account information 24 hours a day.
"Historically the industry has driven how the customer buys," he said. "Now the customer's going to determine that, and it's difficult for the industry to keep up."
Another topic of the moment, the Gramm-Leach-Bliley Act, will have relatively little impact on many bank-owned fund companies, said Wm. David Seymour, national industry director for investment management services at New York-based KPMG LP, a unit of KPMG International. That's because most have worked around the limitations of the new law, he said.
From the standpoint of bank-owned mutual funds, the law will have the biggest effect in areas such as privacy, Mr. Seymour said. Because mutual fund companies generally outsource back-office services such as record keeping, they tend to see privacy as a "vendor issue," he said.
However, he said, new privacy restrictions will probably require fund companies to play closer attention to shareholder data.
The Internet will affect everything from distribution to product lineup, said Chris Wloszczyna, a spokesman for the mutual fund trade group, and technology will feature heavily on the institute's conference agenda.
"Six years ago, people were scratching their heads over the Internet," Mr. Wloszczyna said. "Now it's an integral part of every business."