During his many trips to Asia in the past decade, Paul McCulley has often found himself plopped at a table with local executives, chatting at length about the way macro economics influence the mutual fund industry.
The meetings can last hours, said the portfolio manager at PIMCO, and can involve as many as 20 executives who call Hong Kong, Taiwan, Japan, China and other Pacific Rim countries home. "A three-hour meeting that is a quasi-graduate school seminar is not unusual at all," he said.
The phenomenon is indicative of a hunger across Asia and Europe to build and understand the matrix of the U.S. mutual fund industry. And it's just one of the cultural issues that U.S. fund companies are discovering -- and capitalizing upon -- as they continue their aggressive drive into ripe, international markets.
U.S. firms have found that their marketing messages and product offerings must be regionally localized, comprehensively educational, and in many cases, designed to thwart long-held perceptions that investing is a high-risk endeavor only for the rich.
Historically, Asian and European countries have not developed their mutual fund industries as rapidly as the U.S., said Jim Wiandt, publisher of IndexFunds.com, an information service that launched Web sites in Germany and France this month. Now, the industry is growing rapidly in Europe, skipping many of the developmental stages that the U.S. industry underwent in past decades, he said.
"But there's still some distance to cover for sure," he said.
Understanding Market Is Key
In Germany, for example, people "have a cautious, overall outlook financially," Wiandt said. "They're not taking tremendous risks. There's definitely the idea that stock markets are a little bit of a gamble. There's very, very little awareness that you can mitigate those risks by buying funds that invest in a lot of stocks."
In Asia, meanwhile, consumers have usually purchased financial products through banks that offer all-in-one services. That means specialized services are an unusual concept in the region, McCulley said. To gain favor with international consumers and corporations, U.S. executives are putting a premium on a simple, old-school sales strategy: "You have to be constantly on the ground," McCulley said, "making the contacts and nurturing the contacts. The easiest thing for a decision maker to do in that region is stick with that which he has always used."
Barclays Global Investors is using its direct-marketing and advertising campaigns in Asia -- not just to get investors to choose its products; Barclays wants Asian investors to know that its products exist. "The financial planning concept is not as well developed here in Asia," said Wendy Elwell, an executive in that company's Hong Kong office.
Product Must Meet Market Demand
In an effort to make the best of that strategy, firms are identifying markets that will more-readily absorb their messages and buy their products. Barclays, for example, is pushing its products in northern Asian countries, such as Hong Kong, Taiwan and China, Elwell said.
"It is believed that north Asian countries are more developed, people are better educated and more wealthy in general," she said.
But even in the most-developed economies, investor sentiment can amount to an ancient, seemingly insurmountable blockade, thwarting U.S. companies the way the Great Wall kept northern nomads out of China. The plummet of Asian economies during the past decade hasn't helped. But firms are offering specially tailored products, many of them with "guaranteed" features to assuage investors' apprehensions, Elwell said.
Barclays has addressed the issue in Asia with its exchange-traded funds, iShares, which are also offered domestically. The products are essentially shares representing stock portfolios that closely track one index and allow an investor to own broad aspects of the market.
Barclays says the products are well-suited for Asian investors because they can be good long-term vehicles when markets tank, Elwell said. "Investors that have a bearish or bullish view on particular markets can easily underweight or overweight a market simply with two trades."
The firm also thinks iShares, should appeal to Asia's retail investors, who "tend to be more speculative, with a focus on short-term or quick gains," she said, adding that such investors like "hot markets, hot stocks or hot themes."
That creates a voracious demand for new products, she said. And regulations put a premium on developing region-specific offerings. In many Asian and European markets U.S. companies can't offer products where they are not registered to do business.
Offering offshore funds has helped many companies get around the issue. But language barriers and other rules, such as those in China, India, Malaysia and Thailand, that prohibit investors from putting their money in funds outside their local market, present a constant challenge, Elwell said.
In addition, Wiandt said many fund companies run into trouble placing advertising with his publications overseas because his products reach consumers in regions where the companies are not registered. "You can't advertise where you're not licensed," he said.