The fund industry has a bright future in Asia, according to Terry K. Glenn, chairman of the Americas and president of Merrill Lynch Funds. However, this future has to be built on sound regulation, responsibility and cooperation, he said.
Glenn was the keynote speaker at a conference sponsored by the Investment Company Institute in Hong Kong Nov. 7-9. The conference, "Mutual Funds & Investment Management in Asia," was the first the ICI has held outside North America. The National Investment Company Service Association, the other major industry trade association, has been holding conferences in Asia since 1998 and in Europe since 1992.
The conference was attended by more than 200 people in the mutual fund industries of Asia and the U.S., as well as by regulators and government officials, according to the ICI.
Asia is rapidly becoming one of the largest markets for asset management services, said Mary Podesta, a senior counsel at the ICI.
Each Asian country is unique and firms should not make generalizations about "all Asian countries," said Glenn.
Several factors are creating an ideal environment for the mutual fund industry in Asia, Glenn said. In many Asian countries, there is a growing middle class for whom mutual funds are the ideal investment, he said. China alone has a middle class of between 300 and 400 million people.
Another factor contributing to the good prospects for mutual funds is the increasing popularity of equity investing, said Glenn.
Regulatory changes in several Asian countries in recent years are also fostering the development of the mutual fund industry. For example, India's government in 1999 granted tax concessions to mutual funds and exempted income distributed by open-end equity funds from income tax.
The focus on pension reform in Asia is another factor contributing to the hospitable climate for mutual funds, said Glenn. There are significant developments in pension reform throughout Asia. There are numerous countries, including India, Korea and China, which are in various stages of developing new retirement systems, he said.
Prospects for Asia's asset management market may also be improved through China's entry into the World Trade Organization.
But, with all these opportunities come responsibilities towards potential investors, Glenn said. Assuring investor protection is the most crucial factor in insuring the success of the mutual fund industry and laws and regulations should put investors first, he said. The relationship between mutual fund companies and regulators should be based on cooperation and understanding, he said. It is also extremely important that Asian investors be educated about investing, he said.
"I believe that the key to industry success remains in our hands," said Glenn. "We must maintain high industry standards that put investors first, work constructively with regulators for our common goal of protecting investors, and educate investors so that they can make informed and intelligent choices about their investments. I hope we can seize the opportunity that is presented to us here and live up to these standards - our investors deserve nothing less."
"One message that several people mentioned is that you have to be patient and clear-headed about what it is you want to do in coming into a new market," said Podesta of the ICI. Different Asian countries are in different stages of development of their mutual fund markets, she said.
"China, for example, is in the process of developing a comprehensive mutual fund law," she said. "It has close-end funds but it has not yet introduced open-end funds. That will come soon. They also expect to allow foreign firms to participate in their asset management market in joint ventures with local firms."
Other regulators who spoke at the conference focused on current issues they were dealing with, said Podesta. There were panels on selling off-shore funds, becoming a domestic provider within a country and managing pension assets.
"There are trends that are creating opportunities in all the countries," said Podesta. "But I think that what came out in this conference is that each country is different, its regulations are different. So, a firm that's interested in the market needs to be prepared and be patient."