Fund-Distribution Splits Open Int’l Markets

The growing separation between fund manufacturing and distribution in recent years is creating increased opportunities for fund managers in the global market.

The growing separation between fund manufacturing and distribution in recent years is creating increased opportunities for fund managers in the global market. The split between the two functions means that distributors worldwide are looking to work with third-party funds, according to Ben Phillips, managing director at Putnam Lovell NBF Securities. The realignment has led to an upsurge in subadvisor work, with subadvised assets under management in the U.S. growing from $502 million in 2001 to $959 million in 2005.

Phillips believes this shift has created a new player in the fund world ­ the professional buyer. Professional buyers select the individual funds and then package them for investors. “Professional buyers are here to stay,” he said, bringing with them more opportunities as buyers in Australia and Japan, for example, look overseas for their fund managers.

Phillips’ research, presented at a session during the Investment Company Institute‘s General Membership Meeting, also contained a caution to those expecting levels of U.S. mutual fund investment to be mirrored internationally. While the proportion of households that have invested in mutual funds in Sweden (23%) is about the same as the U.S. (20%), Phillips said he expected investment in Japan to stay at about 3% to 5% of households. Similarly, Phillips said that it’s not true that most countries will have 401(k) plans power local fund markets. With the exception of Chile and Australia, he said, “the symbiosis between mutual funds and retirement plans is a U.S. [phenomenon].”