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Mutual funds eye Europe
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November 3, 1999: 4:00 p.m. ET
Industry experts say there will be explosive growth in overseas markets
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Like many mutual fund executives, Raymond Mason has had his eye on the U.K.'s virgin retirement market for more than five years.
Mason, chief executive of Legg Mason, said Europe will have the same explosion in mutual funds that the United States has seen -- and he wants to "follow the 401(k) trail."
Legg Mason Inc., a financial services holding company that offers 22 U.S. funds, recently announced plans to buy Johnson Fry, a London-based fund group.
"What happened in the U.S. with mutual funds is going to happen in Europe in the next five or 10 years," Mason said. "It's going to happen. It's just a matter of when. Johnson Fry gives us a beachhead. It puts us on the ground in Europe."
U.S. fund companies have been hustling to forge global partnerships. The greatest number of new pairings is in Japan, where investors have the most personal assets outside the United States, according to fund researcher Cerulli Associates of Boston.
But Cerulli also found in a new study that fund assets in Europe will soar from $5 trillion to more than $7 trillion by 2002. Much of that increase is from growth in the Italian and Spanish mutual-fund businesses, as well as in the British pension fund industry, the study found.
Movement toward a unified economy under the euro also has pushed down interest rates and made stocks and stock funds more appealing, the study said.
"Everybody is scrambling to build alliances and set up distribution channels," said Burt Greenwald, a mutual-fund analyst in Philadelphia.
A total of 11 nations are participating in the new currency, including Belgium, Germany, Spain, France, Ireland, Italy, the Netherlands, Austria, Finland, Luxembourg and Portugal.
"Europe may be the world's most promising fund management marketplace outside the U.S.," the study found.
Alliance Capital (AC) has made global ventures a priority, and has $20 billion in assets in overseas markets, said Duff Ferguson, a spokesman for the New York-based company.
The company opened its first London office in 1978 and expanded the operation in 1998 with the purchase of fixed-income manager Whittingdale Holding.
Alliance has $2.9 billion in assets under management in Italy in a 1998 partnership with a consortium of Italian banks, Ferguson said.
Alliance has other ventures in Austria and Poland, and offers a number of Luxembourg-based offshore funds to investors in Germany, France, Austria, Iceland, Norway and Spain, Ferguson said.
"All over the world you have this trend of government-run pensions breaking down," Ferguson said. "Anywhere where there is an appetite for mutual funds … we offer them."
Another high-profile U.S.-U.K. pairing is the $5.3 billion acquisition by Merrill Lynch (ML) of London's Mercury Asset Management. Efforts to reach someone at Merrill Lynch or Mercury were unsuccessful.
Index fund giant Vanguard Group also has ventured overseas, but the company decided to set up headquarters in Brussels rather than London, said Frank Satterthwaite, managing director of Vanguard Marketing International.
Vanguard decided on Brussels because it's part of the Economic and Monetary Union and it's centrally located, Satterthwaite said. Britain is not converting to the euro.
"It was a London-not London decision," Satterthwaite said. "Once we decided not to go to London we pulled out the map and decided to go to what's right in the middle."
Vanguard sees three major reasons to cross the Atlantic. The most important is that some European countries have an even larger aging population than the so-called baby boomers in the United States.
Second, many European governments are struggling to maintain state-sponsored pension programs and increasingly have to turn to the private sector for help. A third reason is the establishment of a unified market of many countries under the euro.
"Vanguard has been looking at Europe for about a decade," Satterthwaite said. The company has about $370 million in assets under management in Ireland-based funds.
Still a new phenomenon
The Cerulli study found that the overseas pairings are still too new to assess.
Mason, who founded Legg Mason in 1962, said the company chose the United Kingdom as a starting point because the nation already has a system in place. Many other countries are just beginning to think about the issue.
While the euro has sputtered out of the gate, Mason said it inevitably will be a force in Europe.
"I think the general belief is it will create a very powerful currency and trading capability, and you're going to have to be in the euro to be part of it," Mason said.
Many fund experts think the trend won't have much effect on U.S. investors. But it may make people who have been focused almost exclusively on Wall Street think more globally, they said.
"It makes the investment adviser much more global, which is important in today's world," Mason said. "It broadens their horizons. We're no longer an isolated part of the world." 
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