Group the go-ahead to set up and market mutual funds there under its "hub- and-spoke" structure. The agreement will make it easier for money managers, including banks, to set up mutual funds in Europe that could share costs and investment styles with portfolios managed in America. Similarly, European firms could do the same in the United States. "This will make cross-border marketing more cost-effective," said Philip Coolidge, Signature's chief executive. "Now if you have a U.S. fund management firm that wants to start a European fund, they can start a portfolio in Luxembourg that leverages the assets in their U.S. fund." Under hub-and-spoke and similar master-feeder arrangements, fund families share a central investment pool but are allowed to develop their own marketing and pricing structure. The approach is intended to cut administrative costs and make it easier to launch new funds. Signature, which acts as a distributor and administrator in these arrangements, negotiated with Luxembourg's securities regulators for two years before getting approval. Many mutual funds are set up in the tiny European nation because of favorable tax laws and access to foreign markets. The company is working out similar agreements with regulators in several Latin American and Asian countries as well as Canada. While Signature has attracted some mutual fund companies here in the U.S. and in the United Kingdom, the company had until now been barred from setting up "hub-and-spoke" in Europe. "The original principle of master-feeder ran into problems in Europe because portfolios are considered separate entities and could not be pooled," said Christopher Poll, chairman of Micropal, a mutual fund tracking firm in London. "According to the European model, the costs and the holdings (of portfolios) need to be clearly identified at all stages," he added. The new global hub-and-spoke arrangement, as it is known, does not pool assets into a single fund. Instead, information on securities transactions are shared between portfolios, all which are managed in a similar manner. Much of the costs and earnings are shared by all the portfolios. Some experts say, the new move could open the door for banks that already have a global presence, but until now could not profitably operate their mutual fund business on an international scale. "Only one in five people live in the U.S. today," said Micropal's Mr. Poll. "The potential is in Europe, in India, and in Asia where people save 25% to 30% of disposable income, compared to 5% in the States." "No American money manager is going to survive for long if they do not go global with their offerings," he added. Signature's announcement comes on the heels of last month's licensing deal with Federated Investors, a leading provider of mutual and trust services to banks. Signature will also license the global fund structure in the near future. Mr. Coolidge said that some U.S. banks and mutual fund companies have already expressed interest in setting up spoke funds in Europe that would be marketed and sold there. European firms have also approached Signature to set up spoke funds that would be marketed in different countries around the continent, though Mr. Coolidge would not disclose who they are.
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