WORLD WIDE ASSET UNDER MANAGEMENT - INCREASING

MARIAM NASIR
Manager Research, PAGE
Mar 17 - 23, 2008

Mutual fund assets worldwide increased US$25.82 trillion at the end of the third quarter of 2007. Asset growth was boosted in part by the participation in the data collection of an additional country. Net cash flow to all funds worldwide was US$319 billion in the third quarter, falling below US$400 billion for the first time since the third quarter of 2006. Inflows to long-term funds were down nearly 90 percent to US$37 billion in the third quarter from US$294 billion in the second quarter. Bond funds were responsible for a substantial portion of the decline, experiencing net outflows of US$51 billion in the third quarter versus a net inflow of US$98 billion in the second quarter. Inflows to money market funds, already robust for four straight quarters, more than doubled in the third quarter, with US$282 billion in inflows compared to US$138 billion in the second quarter of 2007.

Growth in total net assets in the third quarter of 2007 was boosted by two factors. First, the third quarter was the first time China has reported mutual fund assets. Excluding Chinese mutual funds from third quarter totals, growth in assets would have been 4.5% in the third quarter rather than 6.2%. Second, in many countries, growth in assets reported in U.S. dollars was augmented by depreciation of the dollar. For example, mutual fund assets in Europe on a U.S.-dollar-denominated basis increased 2.9%, compared to a decline of 1.9% on a Euro-denominated basis.

On a U.S.-dollar-denominated basis, asset levels increased in all investment categories. Assets of equity funds grew 5.6%, with US$12.6 trillion in assets at the end of the third quarter of 2007. Bond funds were up 2.1% and money market funds grew 9.3% in the quarter. Assets of balanced/mixed funds increased 11% to US$2.6 trillion at the end of the third quarter.

Net cash flow to mutual funds worldwide was US$318 billion in the third quarter of 2007, with both long-term funds and money market funds experiencing aggregate net inflows. Equity fund flows worldwide were US$31 billion in the third quarter, down from US$103 billion in the second quarter. The Asia/Pacific region accounted for US$48 billion of equity flows in the third quarter and the Americas for US$14 billion of equity flows in the third quarter, compared to US$68 billion and US$42 billion, respectively, in the second quarter. Europe registered a net outflow of US$31 billion from equity funds in the third quarter, compared to a net outflow of US$6 billion in the second quarter. Bond funds experienced US$51 billion in net outflows in the third quarter of 2007, compared to net inflows of US$98 billion in the second quarter of 2007. Net outflows from bond funds were US$63 billion in Europe in the third quarter, compared to net inflows of US$15 billion in the second quarter. Net inflows to bond funds were US$14 billion in the Americas in the third quarter, down from US$65 billion in the second quarter.

Worldwide inflows to balanced funds were US$23 billion in the third quarter, with US$17 billion, or about three-quarters, attributable to the Americas. Flows into money market funds were US$282 billion in the third quarter of 2007, about twice as high as the rate of inflows over the previous four quarters. Net flows into money market funds in the United States jumped to US$312 billion in the third quarter from US$100 billion in the second quarter. The rest of the world experienced net outflows from money funds in the third quarter. In particular, European money market funds had net outflows of US$27 billion in the third quarter versus net inflows of US$35 billion in the second quarter.

NUMBER OF MUTUAL FUNDS

The number of mutual funds worldwide stood at 64,062 at the end of the third quarter of 2007. By type of fund, 41% Equity fund assets represented the bulk of all worldwide mutual fund assets. At the end of the third quarter of 2007, 49 percent of worldwide mutual fund assets were equity funds. The asset share of bond funds was 16 percent and money market funds were 18 percent of the total. Balanced/mixed fund assets represented 10 percent of the total. funds, 21% were bond funds, 21% were balanced/mixed funds, and 5% were money market funds.

Equity fund assets represented the bulk of all worldwide mutual fund assets. At the end of the third quarter of 2007, 49% of worldwide mutual fund assets were equity funds. The asset share of bond funds was 16% and money market funds were 18% of the total. Balanced/mixed fund assets represented 10% of the total.

OUTLOOK

It is estimated that the total size of the global assets in alternative investments to be US$4 trillion by 2008, including investments in hedge funds, private equity firms, real estate, and commodity funds. Investments in alternative vehicles have been growing rapidly, at an estimated average rate of 19% in recent years.

Many of these new assets would flow into hedge funds. By 2006, more than 9,000 hedge funds managed an estimated US$1.2 trillion. Yet, as recently as 2000, there were less than 4,000 funds with US$490 billion in assets. Hedge funds are also pursuing new strategies. More hedge funds are expanding internationally, buying distressed debt, originating loans directly, or entering private equity.

While many asset management firms have been managing defined contribution (DC) plans for years, institutional money managers that have specialized in defined benefit (DB) pension plans may find it difficult to make the transition. In addition, asset management firms are increasingly competing with other financial services providers, both to manage assets in DC plans and to capture these assets when participants retire or change jobs.