Mutual fund companies aspiring to expand abroad could do so by offering potential partners record-keeping services, according to speakers at a recent conference.
U.S. firms excel at record keeping while foreign firms do not, said speakers at the conference, "Capitalizing on the Global Retirement Market." The conference, in early December, was sponsored by International Business Communications of Southborough, Mass.
European firms still rely heavily on faxed, mailed and manually-recorded hard-copy files, said Brendan O'Farrell, the chief executive officer of HCM International, an international mutual fund service company with offices in Dublin and Seattle, Wash.
The key for a mutual fund company looking to enter foreign markets, which are highly competitive in asset management and distribution, is to offer something new and different, O'Farrell said. A mutual fund company that has aligned with one or more service companies to provide turnkey record-keeping operations, will have something different and attention-getting to offer foreign companies, he said.
A company that can translate records and computer code so they can be used in many countries, for example throughout the European Union, will be especially welcomed, said Amy Errett, chairman and chief executive officer of Spectrem Group of San Francisco.
"Record-keeping and clearing and settlement is fundamentally different in various nations," Errett said.
"Each market is already so overcrowded," said Peter Marshall, a partner with Ernst & Young of New York. "Why not focus on the fact that it is hard to find service providers?"
Technological obstacles that service providers are working on include the ability to handle multi-currency processing, international tax reporting and systems linkages, said Scott Moss, senior vice president for retirement services at BISYS Investment Services of New York.
Many mutual fund and service companies may not see past the initial hurdles of setting up record-keeping systems, Moss said. Until the number of shareholders and assets build abroad, the profit margins on building these systems will be minimal, if not negative, Moss said.
Some fund companies and service bureaus that can look past these initial start-up costs to gain a foothold in other nations will have an advantage, he said. Others will drop out of the race, he said. That will open a window of opportunity for latecomers to gain some of this business. It is up to the fund and service companies to decide whether they want to be among the early entrants or to risk entering the overseas markets later, he said.
Marshall of Ernst & Young said getting in early would be easier than waiting.
"People who get in early into a market have a much higher chance of success," he said. However, Marshall agreed with Moss that the high start-up costs might seem prohibitive to some fund companies.
"Someone has to subsidize record-keeping costs to get programs up and running," he said. The most likely companies to do so would be the very large ones, working in partnership with service providers, he said.
In addition, companies offering record-keeping services which have attempted to land non-U.S. accounts, have found that outside the U.S., there is a bias towards "mega-world dominant players," said Timothy Slavin, chief executive officer of InvestLink Technologies of New York.
Non-U.S. companies seeking to overhaul their back-office and technology platforms derive comfort from paying huge amounts for such projects, Slavin said. Bidding a fair price for these accounts indeed is counterproductive since there is such skepticism towards smaller technology and service companies, he said. Landing such accounts also involves a great deal of education and trust-building, he said. One way to build such trust is to offer a 90-day free trial and on-the-fly development - continual customization of the service, he said.
