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Moody's Says European Distribution Of Mutual Funds Still Difficult

Tax-news.com

24 August 2000

Moody's, the US ratings and investment advisory service arm of Dun & Bradstreet, has published a report this week which says that poor distribution is holding back the growth of the mutual funds sector in Continental Europe. Vania Schleef, the author of the report, says there is no doubt that a broader market is the best way forward and that domestic financial managers should pay more attention to establishing a wider European presence, or risk losing market share.


The report points out most mutual funds are currently sold by domestic banks, which are themselves only slowly achieving any kind of cross-border distribution. The current system therefore constitutes a barrier for foreign asset managers, who can't find any one local distributor with more than a partial grasp on the market. Indeed, most of the local banks are motivated to stand in the way of a foreign mutual fund issuer or manager, because it would cut across their existing domestic (and probably uncompetitive) products.

On the bright side, the report says that change is on the way, with an increased emphasis on performance by investors, and new distribution techniques undermining the past stranglehold of the banks. Investors, both individual (famous Belgian dentists) and institutional can now source products through the Internet, and can go direct to exchange-traded instruments, bypassing the banks.

The current rush of merger activity on the continent may also offer a solution to this problem, says Moody's. It points out that asset management companies are increasingly using mergers to gain market access and increase their power while negotiating third party distribution.

The UK is very different from the rest of Europe, because the strength of the UK's equity market and the openness of the financial sector to the world economy has meant that managers have always had more equity orientation, with a greater choice of funds on offer.

UK asset managers, with their strong equity bias, are believed to be a good platform to expand pan-European business and are therefore, seen as valuable merger targets. Moody's cited Merrill Lynch Investment Managers (MLIM) as one manager which has now spread its web in various European countries - in the Netherlands, Spain, Switzerland, Germany and Italy.

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