A European fund researcher reported this month that, despite volatile global markets, the number of funds domiciled in Luxembourg, the continent's key mutual funds hub, has continued to increase, driving assets under management up by 6% in 2001.
The number of funds and sub-accounts domiciled in Luxembourg increased by 8% to 7,414 at of the end of last year, from 6,873 in 2000, according to London-based fund tracker Fitzrovia. Assets in those vehicles totaled $822 billion at the end of 2001, the researcher said.
Meanwhile, net flows have continued at a strong pace. New York research firm Strategic Insight said net flows into equity and balanced European mutual funds in the first quarter totaled $20 billion.
Researchers at Fitzrovia called the increase in assets remarkable, considering that world markets have been bludgeoned for months by sluggish economies. "Any increase in the size of the industry would be impressive, given the market conditions throughout 2001," said Fitzrovia CEO Paul Moulton in a statement.
Analysts said the increase demonstrates that, as the saturated U.S. market remains relatively stagnant, companies are pursuing opportunities in the less-developed European market.
"For the next 20 years, Europe is going to emerge as the single largest asset management market, aside from the U.S.," said Shiv Taneja, a senior analyst in the London office of Cerulli Associates of Boston. "You can't ignore the European markets."
Analysts said that half of all American households are invested in funds, indicating that the U.S. industry is unlikely to grow substantially anytime soon. In contrast, assets under management in Europe are expected to double from the current $2.71 trillion to $5.42 trillion by 2006, Taneja said.
Luxembourg, as well as Dublin, Ireland, are popular locations for offshore companies to domicile their funds because vehicles based there face fewer regulatory hassles when it comes to marketing and selling funds in European markets.
Fitzrovia reported that the top U.S. players domiciling their funds in Luxembourg are: JPMorgan Fleming, of Boston and London, with $49.8 billion in assets under management; Pioneer Investments of Boston, with $24.9 billion; Fidelity Investments of Boston, with $24.5 billion; and Merrill Lynch of New York, with about $19.1 billion.
In addition, equity funds represent particular growth potential in much of Europe, Taneja said. Assets in the U.K. are invested similarly to those in the U.S., with about 76% of them in equities. But in France, only 28% of the nation's assets are invested in equity stocks or funds, with the rest in fixed-income products. That number is expected to grow to 50% by 2005, according to Cerulli's estimates.
Managed account and retirement vehicles are also increasing in popularity among Europe's investors. Cerulli estimates that managed account programs in Europe will be the continent's fastest-growing financial services segment in the next five years, with a growth of $70 billion to $100 billion in assets in those vehicles.
The increasing popularity of managed accounts is "driven by tax benefits" as well as the rising popularity of a multi-manager approach to overseeing assets on the continent, Taneja said.
In addition, with state pension programs declining in number throughout Europe, retirement investing programs similar to those in the U.S. are proving popular.