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. Last Updated: 07/27/2016

U.S. Mutual Funds Face Hurdles in Export Drive

NEW YORK -- The mutual fund industry is encountering some slow going as it tries to extend its huge success in the United States to other countries.

For years, the idea has tantalized fund company managers that they might find a broad export market for their products, the way American moviemakers, fast-food restaurant operators and manufacturers of consumer items have.

But so far, "the ultimate hard reality is that overseas citizens are not clamoring for U.S. fund management like they are for U.S.-made hamburgers, soft drinks, razors or toothpaste," according to Cerulli Associates, a Boston consulting firm that specializes in financial services issues.

The picture may brighten in the future, the firm adds in summarizing a report it has just published on "Trends in the Offshore Mutual Fund Market." But some significant obstacles need to be overcome.

The funds' effort to sell themselves overseas bears watching for U.S. investors, because it stands to play a big role in determining whether the industry can maintain anything like its recent growth rate in the years ahead.

"Though asset growth and inflows continue to be robust," the Cerulli report observes, "there is consensus that the mutual fund industry has become saturated. Many U.S. fund companies are wondering from where future assets will come. In most cases, they are setting their sights on the non-U.S. market."

To date, U.S. fund managers have built up some $56.6 billion in overseas assets, Cerulli reports, with the three biggest entrants in the field -- Fidelity, Citibank and Merrill Lynch -- accounting for about 40 percent of that total.

The asset number is rising. But it still represents only about 3.7 percent of the total international fund-management market, as gauged by the research firm of Lipper Analytical Services Inc.

In trying to sell U.S.-style fund management to foreign customers, managers must adapt their vehicles to local conditions in each country, including cultural and traditional values as well as economic and regulatory differences.

For instance, Cerulli notes that in many overseas markets, investors don't have quite the taste for stocks that the U.S. population has developed, but lean more toward bonds and other fixed-income investments.

While U.S. investors are accustomed to investing on the presumption of economic growth, the idea of growth may be newer or look more tenuous to many foreigners with money to manage.