The Global Picture

As we get set to make a fresh start  in the New Year 2013, we thought it was appropriate to expand our horizons and take in new sights. And what could be

better than looking at the state of the mutual fund businesses in other countries. 

To give us a more well rounded perspective, we picked up a few of the biggest countries and a few that were closer to us – in size and geography. As you go

through the brief profiles, you will find that though each country is unique,

there are similarities with our market. I do hope you enjoy going through the

calendar and find the ‘picture’ insightful and interesting. 

 January - U.S.A

The world leader in mutual funds, the US industry manages $13 trillion, accounting for 57% of global assets. An impressive 44% of American households own mutual funds with defined contribution plans making up one-tenth of US households aggregate financial assets. The first open end fund which was launched by Massachusetts Investors Trust in Boston way back in 1924 is in existence even today. In the 1970s, the industry got a major boost through money market funds which were able to offer competitive returns due to the restrictions imposed on bank interest rates.

 February - United Kingdom

With an 81% share, institutional clients account for a major share of the UK fund market. UK’s asset management firms earned a combined revenue of $ 17 billion in 2011 on an AUM of $ 1.02 trillion. The main distribution channels are private banks, retail banks, fund supermarkets and IFAs. Unlike the rest of Europe where many AMCs are controlled by banks, in UK only 18% AMCs are owned by banking groups while insurance firms control 17% and 65% are independent.

Mutual funds are known as Toushin in Japan. It is the eight largest fund industry in the world and the second largest in the Asia-Pacific region. There are 3937 funds in Japan managing $ 674 billion.  Japanese individuals invest 4% of their personal savings in mutual funds. The growth of the industry somewhat stagnated after the collapse of Tokyo stock market in 1990. Nomura, Nikko and Daiwa are the largest asset managers in Japan.

April – China

Typical of China, in spite of being a late entrant in mutual funds, it is now one of the largest and fastest growing markets. Currently, 73 AMCs manage $380 billion through nearly 1000 schemes. The growth of China’s mutual fund industry is fuelled by retirement funds (similar to 401 k) which give tax breaks in equity investments. Though 31 foreign groups have entered the Chinese mutual fund industry, domestic partners have an overwhelming control. Recently, China has allowed foreign banks to sell mutual funds.

May – Canada

Canada’s 80-year-old mutual fund industry manages $834 billion.  There are around 150 mutual fund firms in Canada employing more than 90,000 people. Mutual funds and mutual fund wraps account for nearly 30% of Canada’s financial wealth. Much like what has been recommended by SEBI recently, Mutual Fund Dealers Association is the self-regulatory organization (SRO) that regulates mutual fund dealers. A majority of Canadian advisors earn from trail fees with some advisors charging a flat percentage fee, irrespective of asset size.  

June – Thailand

The first mutual fund was formed in Thailand in 1975 by the Thai government in association with the International Finance Corporation (IFC). Since then, the regulator has allowed more entrants. Currently, there are 23 AMCs in Thailand managing $ 93 billion, equal to 19% of the country’s GDP. The industry has seen rapid growth over the last 15 years with the number of mutual fund investors going up to 29 lakh from eight lakh mutual fund investors in 1997.

July - France

France is home to 608 AMCs of which 150 AMCs have come up in the last five years. The industry which manages $ 1.56 billion employs 83,000 people. Banks and independent advisors are the major distributors of mutual funds.  In terms of AUM, France is the leader in Europe with a 20% market share. In France, a majority of AMCs are owned independently with another 27% being owned by banks. France’s PERCO, a pension plan accounts for one fifth of direct and indirect holding of French equities in households financial wealth.

August - Hong Kong

The country manages a large pool of non-resident money through mutual funds, aka, unit trusts.The golden period for the industry was when Hong Kong’s mutual fund assets grew from 16% of GDP in 1992 to 52% in 1998. It has a large equity fund market though bond funds are becoming hugely popular in the wake of financial crisis. The industry assets under management stood at $ 743 billion. Equity funds in Hong Kong charge 5%-6% initial charge or front loads.

September – Australia

With an AUM of $ 1.72 trillion, it is the fourth largest mutual fund industry in the world. Australia’s mutual fund industry comprises real estate investment trusts, boutique funds and ETFs. The growth of the Australian fund industry is mainly due to its matured financial market, large investor base and Australia’s compulsory retirement income (superannuation). It also has a large retail investor base. Introduction of mandatory retirement income system in 1992 saw assets under management grow by 11 % with the AUM doubling since 2003.

October – Pakistan

With an AUM of $ 2.6 billion which is less than 1% of Pakistan’s GDP, the Pakistani mutual fund industry has a long way to go. Low savings rate has been an impediment to the growth of the economy and the mutual fund industry. The industry is dominated by institutional investors with investor accounts being less than two lakh. Though the industry grew rapidly from 2001-2007, the financial crisis has nearly halved the industry’s AUM.

November – Italy

Though mutual funds emerged only in 1984 in Italy, it is the second biggest market in continental Europe after France. With more than 302 AMCs, its market share in Europe’s AUM stands at 5%.  The industry kick started during late 1990s when government bonds lost their shine and interest rates dropped, leading to money shifting to actively managed bonds. The industry today manages $ 1.27 billion.  51% of AMCs are owned by independent players, followed by banks.

December – Luxembourg

Liberal rules and minimal taxes make it one of the most sought after places for asset managers. It is the world leader in cross border fund distribution. Luxembourg domiciled investment structures are distributed in more than 70 countries and account for more than 70% of UCITS funds distributed internationally. The country also offers a variety of attractive fund structures in terms of Shariah-compliant investment funds, microfinance investment vehicles and sustainable and responsible investment vehicles.