American mutual fund companies are taking aim at the European market, but few are hitting their target.
"Every (American) I meet wants to talk about Europe, but when I tell them it's quite different, they just don't believe me," said Howard Flight, joint managing director at Guinness Flight Global Asset Management Ltd., London.
"Other than Fidelity, the fund industry is finding it quite difficult to come to terms with the rest of the world," he said.
Mr. Flight made his remarks Thursday at IBC Financial Focus' eighth annual offshore funds conference here.
The problem for most American fund companies, Mr. Flight explained, stems from their ambition and their appetite for scale. New entrants in the European market would be best served by building their business with small funds. But for many American firms, "that's not good enough," Mr. Flight said.
Hungry for size, many U.S. fund companies have entered the European market by teaming with a bank to offer what is essentially a large money market fund. While these products are popular in the United States, they are not favored in Europe.
"Money market funds are more successful in the U.S. because regulators there have set the scene for them to take off," Mr. Flight said.
Regulation Q, which bars banks from paying interest on demand deposit accounts, and the thrift crisis of the 1980s have made bank deposits less attractive to American savers. Many are choosing to park their money in money market mutual funds instead.
The picture is not all bleak for American fund companies abroad. Fidelity Investments, the Boston-based fund behemoth, has been extremely successful marketing its portfolios in Europe, Mr. Flight said. He attributed its success to Fidelity's relentless pursuit of the business.
"They will keep throwing money at things until they get it right," Mr. Flight said.
Another factor, he said, is that Fidelity is a "well-rounded independent." Unlike other fund companies that have fallen victim to consolidation, Fidelity is not a subsidiary of another financial services firm.
"Large (mutual fund) businesses owned by commercial banks lose their oomph," Mr. Flight said.
Still, he acknowledged that in today's cutthroat environment, having a deep-pocketed parent has its advantages. In 1994, when some U.S. money market funds "broke the buck" - that is, saw the net asset values of the money market funds slip below the customary $1 per share - they relied on their parents to make them whole.
"People have to have enough muscle to make up any losses," Mr. Flight said. "That is encouraging consolidation."
Another speaker at the conference - a Fidelity Investments executive - explained why U.S. firms are eager to enter new markets abroad - although he failed to give away any of Fidelity's keys to success.
In the United States, some 77% of households with annual incomes of $75,000 or more already own mutual funds, said Richard Wastcoat, executive director in charge of European retail marketing. And two-thirds of all Americans can name a mutual fund company.
At the same time, the market is consolidating rapidly, with 211 merger and acquisitions reported in the industry over the past five years. "Mega- fund managers will look for new markets," he said.
